The Fed has a big problem. It acts in secret. That makes it an odd duck in a democracy. As long as it’s merely setting interest rates, its secrecy and political independence can be justified. But once it departs from that role and begins putting billions of dollars of taxpayer money at risk -- choosing winners and losers in the capitalist system -- its legitimacy is questionable.
Thursday, April 01, 2010
Questions about the Federal Reserve's Legitimacy
Recent revelations about the bailout of Bear Stearns has prompted Robert Reich, former Secretary of Labor, to raise serious questions about the limits of the Federal Reserve's authority. Here's a paragraph that summarizes Reich's concerns:
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I agree with Mr. Reich in one sense: to the extent we institutionalize and build into the structure of the Federal Reserve more authority than it has traditionally exercised, particularly with regard to picking winners and losers, we are treading on dangerous ground.
However, in some circumstances an individual or a society simply needs to "act". If I see a person hit by a car and blood is spurting out of an artery, I may not have authority or the best cabability; but I am going to act to stop the flow of blood for better or worse.
By all accounts our economic system was in crisis. As my father use to say, "Don't stand there, DO SOMETHING!" We needed someone to act. The Fed may have made some mistakes from which we can learn; but, thankfully, someone had the courage to act. Congress can barely get out of its own way. The President is on an occassion like our economy experienced be of little use on his own. The Supreme Court wasn't going to do anyting. Thankfully, the Congress and the President had the good sense to throw the ball to the Fed and shout "run"!
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