Here is a very good piece by Amar Bhidé, “Wanted: A Boring Leader for the Fed.” Bhidé, like the Austrians and sensible mainstream economists like John Taylor and Raghu Rajan, is deeply concerned about the principle that the “independent” Fed should assume, and exercise, vast discretionary powers. “Instead of casting about for a new maestro, we need to return the Fed to dullness and its chairman to obscurity.” In other words, we need a monetary system where the Fed plays such a small role, or such a carefully circumscribed role, that it doesn’t matter who runs it.
Counting on monetary policy to secure full employment is like attempting vascular surgery with a dull ax. Diversity and dynamism are vital features of our economy. As home building in Nevada collapsed, fracking in North Dakota boomed. Facebook and Apple surged while AOL and Yahoo stumbled. Across-the-board interest-rate suppression is just as likely to pump up already surging sectors as it is to revive slumping ones. Property prices have soared in Manhattan, while Detroit is in a death spiral.
Commanding the Fed to eliminate price fluctuations is also asking too much. The prices of bananas can fluctuate even across neighboring supermarkets. Each of us has our own consumption basket and inflation rate. The overall inflation rate is important — as Mr. Greenspan’s predecessor, Paul A. Volcker, demonstrated in the early 1980s when he crushed inflation at the cost of painful, back-to-back recessions — but only at the extremes.
I, too, would prefer a world in which we don’t know the Fed chair’s name — because there is no Fed chair, and no Fed. Bhidé doesn’t go that far — he favors a monopoly central bank, but one with strictly limited powers, stronger accountability, and under democratic control. Still, his arguments generally track my own on the microeconomics of central banking, namely that the Fed has far too much “independence” and, short of being scrapped entirely, should be bound and gagged as tightly as possible. Bhidé has previously advocated a more decentralized, participatory, open approach to monetary policy, which reminds me of Joe Salerno’s suggestion to put Congress in charge — not because Congress is competent to conduct monetary policy, but that Congressional oversight would open up and expose the process for the stumbling, fumbling, rent-seeking, cronyism that it has been since 1913.