[Congressional Record Volume 157, Number 154 (Friday, October 14, 2011)]
[House]
[Pages H6966-H6970]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
THE FEDERAL RESERVE
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 5, 2011, the gentleman from Massachusetts (Mr. Frank) is
recognized for 60 minutes as the designee of the minority leader.
Mr. FRANK of Massachusetts. Thank you, Mr. Speaker.
I intend to talk about the Federal Reserve, but preliminarily, having
listened to my colleague from Texas, I did want to note a little bit of
a dissent.
He cited Queen Isabella of Spain and King James of England for having
decided what kind of country we should be. Now, the question of the
religious nature or not is obviously a legitimate one to debate, but I
was a little surprised to be told that I was to be in any way bound by
what Queen Isabella or what King James said hundreds of years ago. I
thought one of the purposes of the American Revolution was to tell
European monarchs that we would here in America make our own choices.
But I want to talk today about the Federal Reserve and particularly,
frankly, about my disappointment in a debate, I guess, I've been
having--it's been kind of one-sided because he's never spoken to me--
with Mr. George Will.
I know it's common advice to Members of Congress and to other
political leaders not to get into an argument with the people in the
media. I think that's a great mistake. I think that respect for
openness and democracy should make this a two-way street and that the
notion that responding to criticism in the media that's inaccurate is
somehow inappropriate or hypersensitive is a great mistake. What I
would have looked forward to was a debate, with probably Mr. Will and
others, about the Federal Reserve.
I did file legislation last April to change the structure of the
Federal Reserve's Open Market Committee, which votes to set interest
rates to the extent that we can, and it now consists of the seven
appointees to the Federal Reserve Board of Governors who are appointed
by the President and confirmed by the Senate--people selected in that
democratic way but with 14-year terms to guarantee some independence.
They are Presidentially appointed and confirmed by the Senate, but they
serve for 14 years so that there is not, presumably, the chance for one
President
[[Page H6967]]
to get everybody. There are built in some staggered terms there.
{time} 1530
But there are also five votes that are cast by regional presidents at
the Federal Reserve Bank. These five people--it's on a rotating basis.
The New York president always gets it. Four others out of the remaining
ones go on periodically. These are people helping setting the most
important public policy in America: monetary policy, interest rates.
But they come with nothing remotely resembling public participation
in the process. They are selected by the Federal Reserve boards of
directors, which they in turn have largely selected; and those boards,
not surprisingly it's the Federal Reserve regional system, are
marginally people, more than anyone else, in the financial community.
Now it's very important for people in the financial community to be
represented, and I am very glad that the regional presidents come to
the meetings and should be allowed to speak, be encouraged to speak.
But having people who are appointed by bankers, who then appoint new
bankers to appoint new people, be 5 of the 12 votes in setting monetary
policy I believe violates democratic norms.
I think it also gives a bias against the mandate the Congress has
given the Federal Reserve--it's not been changed--to worry equally
about inflation and unemployment, because, and the record shows this,
the regional bank presidents tend to be concerned more, on the whole,
about inflation than an appointment. They don't regard the two as
equal. That's not surprising given whom they represent. That's a
legitimate argument for debate. And I filed legislation last April to
leave the regional presidents in the position of speaking but not
voting.
Mr. Will differed with that, and I look forward to a debate. Mr. Will
does not agree with Mr. Bernanke's policy of trying to respond to our
economic troubles by increasing the availability of money, the
quantitative easing. Mr. Will is apparently on the side of people who
have been proven to be quite wrong factually that this is going to lead
to inflation.
Mr. Bernanke's policies have, in fact, I think helped alleviate the
crisis--although not doing as much as we would like, because there are
limits to what monetary policy could do. Contrary to predictions, they
are not costing the Federal Government money; they haven't led to
inflation. I would be glad to debate that with Mr. Will. But instead he
engages in a kind of snarkiness that I found unbecoming. I had thought
Mr. Will to be someone who was committed to intellectual debate, but
that simply wasn't there in his approach.
Let me say, and I will document this, that his response in his
column, and then in a follow-up column, basically seemed to me to be a
sad combination of blatant factual inaccuracy, of logical confusion,
and, sadly, I must say, of intellectual dishonesty, and, finally, great
inconsistency.
Let me begin with the factual inaccuracies.
Mr. Will's thesis in this column is that I filed that bill largely
because I did not agree with a vote last summer of the Federal Reserve
open market committee, 7-3, in favor of Mr. Bernanke's policy. And it's
true, I differed with those three. I agreed with the policy of the
seven of the three, and I differed with the three. And here's what he
says:
``Frank says he has `long been troubled' from a `theoretical
democratic standpoint' by the `anomaly' of important decisions
affecting national economic policy being made by persons `selected with
absolutely no public scrutiny or confirmation.' ''
That's absolutely right. I do think there is a shocking lack of
respect for democracy when we are talking about fundamental powers
given to people who are neither elected nor appointed and confirmed by
other elected officials but are selected by a small, self-perpetuating
group of people who want particular economic segments. I'm ready to
debate that.
But here's what Mr. Will suggests, basically, that I was not really
bothered by that. I notice that he is sort of denigrating my
formulation here because what he says is, ``It was not, however, until
August that this affront to Frank's democratic sensibilities became so
intolerable that he proposed a legislative remedy.'' Such snarkiness
about democratic sensibilities that seem to be unbecoming to Mr. Will.
But here's his fundamental point: That while I said I was troubled
because we shouldn't be giving a self-selected group of private
citizens of a particular economic interest governmental power, that
that was sort of a cover, he's suggesting, because they didn't do
anything about it until August when the vote had taken place.
There's one problem with that, Mr. Speaker. I did it in April, not
August. The bill had been filed in April and I publicized it in April.
It is true that in August I put out a statement noting that this 7-3
vote was an indication of what I thought was a result of having this
undemocratic element. But Mr. Will's fundamental refutation of my
position was that I wasn't really concerned about democracy and public
participation or having a kind of guild socialism that I would have
thought he would have been opposed to, of having the guild of bankers
be the ones who set public policy for the banks. He said it wasn't
until August that I did this, but I did it in April, and he was flatly
wrong.
Now, he didn't know that I did it in April instead of August because
he didn't talk to me. He didn't think it was necessary, given his lofty
philosophical position, to do any fact checking, and he was simply
wrong. And he was not just wrong about it being April instead of
August, which is not a minor error. It's fundamental.
By the way, I said ``intellectual dishonesty.'' Let me explain what I
meant by that.
I wrote a letter to The Washington Post pointing out that while April
and August both start with ``A,'' they are, in fact, several months
apart, and it was kind of hard to argue that I did something in April
because I knew what was going to be happening the following August. So
he was simply wrong, and that was central to his argument.
Here was his acknowledgment of error. It's a correction note to a
recent column, and he says, ``In a recent column, I suggested that
Representative Barney Frank's legislation to reform the Federal Open
Market Committee was introduced in August, when in fact it was
introduced in April.'' He suggested it. Here's how he apparently
suggests things.
Quote, It was not until August that he proposed a legislative remedy.
It's doesn't sound like he said I suggested. He said I said it. But
even more important, the fact that it was April and not August was a
central flaw in his argument. He doesn't acknowledge that in his, I
think, intellectually dishonest correction. He says, oh, I suggested
August when it was really April, as if that was kind of almost an
incidental error. But it wasn't an incidental error. It was fundamental
to his misreading of my motives.
What was also an inaccuracy was his beginning the column by saying,
``Fond of diversity in everything but thought, a certain kind of
liberal favors mandatory harmony (e.g., campus speech codes).''
In other words, he began, that's when he led to saying I did this in
August because I was so upset about this vote, that that's the only
reason I did it, not because of any concern about democratic input. He,
here, is saying that this was an indication of me as one of those
liberals who is opposed to free debate, and I'm for campus speech
codes.
Well, in fact, you couldn't be more wrong on that one either. I've
have been one of the Members of this House, I'm proud to say, most
supportive of free speech. I have specifically opposed campus speech
codes.
Again, this looks clearly as if this is just an example of the kind
of mentality that leads meetings for campus speech codes. I have spoken
against them. I have said that I do not think that the concept of hate
speech is a reasonable one as far as the law is concerned. People can
call it anything they want, hate speech, but, no, there shouldn't be
any restrictions on it. There shouldn't be any laws against it.
I am very proud, along with my colleague from Texas Mr. Paul and our
departed colleague Mr. Wu, we voted against legislation that would have
prevented one of the great ranting
[[Page H6968]]
homophobes of our time, the Reverend Fred Phelps, from holding up
vicious and obnoxious signs at the cemeteries of men and women killed
in war as long as he did them so that he wasn't right in the cemetery
grounds. We thought there was a free speech problem with this, and the
Supreme Court agreed with us.
So Mr. Will is just again factually inaccurate and accusing me of
being one of those people who is for stopping dissent. Once again, if
he'd asked me about it, I would have told him, no, I have a record of
opposing campus speech codes and that had nothing to do, disagreement
with dissent had nothing to do with my position here.
And that leads me to his logical confusion. Those are his two great
factual errors: his misdescription of me as being someone who is for
campus speech codes and for curtailing speech, and his deciding that I
did it in August when I did it in April, which invalidates his central
thesis about my motive.
But even more shocking for me was this fundamental, logical confusion
from Mr. Will, who, I had frankly expected better of in this context.
{time} 1540
He conflates two very separate points. He says this is an example of
my not supporting diversity of speech. I am totally for diversity of
speech. This is not a case of free speech or diverse expression of
opinions. This is a case of exercising government power.
I did not say that Federal regional presidents shouldn't be allowed
to talk about Federal Reserve monetary policy or anything else. There
was no restriction on their speech. The bill says that they shouldn't
be given a vote on public policy.
I am frankly very surprised, as I said, that Mr. Will confuses the
two and tries to denigrate my move to keep them from voting to make
public policy as an example of being opposed to free speech. This is
really quite surprising and an example, I think, of his just deciding
he was going to use any argument that he could against it.
As a matter of fact, the Federal Reserve presidents are all invited
to the meetings and can speak, even those who don't vote. And I'm all
for that. And so this notion that this is somehow an example of liberal
opposition of free speech, when I am someone who has a very good record
on free speech, and when I am not in any way impinging on their right
to speak, is a further disappointment.
Mr. Will clearly disagrees with the policies that Ben Bernanke is
following. In the column, he suggests that my concern for protecting
both sides of the Federal Reserve's mandate, unemployment and
inflation, is misguided. He doesn't say that exactly, but he says,
``The actual language of the mandate speaks of promoting `maximum
employment,' which is problematic: `Maximum' means `the highest
attainable,' and this might depend on ignoring the other half of the
mandate.''
So he's sort of justifying people ignoring the employment mandate by
saying the only way you can support it is to ignore the other half.
That's not true. That's not supported by the record. That's not
supported by logical analysis.
I'm prepared to debate with Mr. Will whether or not we should do what
I think he really wants to do, which is go to a single mandate on
inflation. A number of my conservative colleagues want to do that here
and amend what we call the Humphrey-Hawkins Act, and do away with the
Fed's concern about unemployment. I think that would be a great
mistake.
I admire Mr. Bernanke because he has preached to us about the dangers
of unemployment. He has pointed out that a decision to cut the budget
very quickly right now rather than defer that for a later time in a 10-
year period exacerbates the unemployment. He has called it a headwind
for the economy. I welcome the fact that Mr. Bernanke, a George Bush
appointee originally, has been so diligent in worrying both about
inflation and about unemployment. And as Mr. Bernanke has pointed out,
we have in fact been more successful in holding down inflation than in
combating unemployment, and that I think is an appropriate thing.
Again, I would be willing to debate that with Mr. Will.
But the tactics he uses of trying to denigrate my motives and falsely
imputing to me an opposition of free speech, as I said is, I think,
disappointing. I would have preferred to talk about this on the merits.
Mr. Will also is sneering in his reference to ``cheap money.'' He
talks about Mr. Bernanke's policy about ``cheap money.'' That's, of
course, one of these pejorative ways of talking about something that
you disagree with. In fact, cheap money suggests that you are devaluing
the currency. That hasn't been the case. I am prepared to debate, as I
said, whether or not what Mr. Bernanke has done in quantitative easing
has been good or bad. I think it has been good, and those who have been
critical of it have been proven wrong factually. It hasn't cost the
government money, and it hasn't led to inflation. But Mr. Will won't do
that. It is, again, falsely setting up this notion in which I am an
opponent of free speech, and that's why in August I decided to do this.
I have been a great supporter of free speech. I did it in April and not
August, and this isn't about free speech; this is about public policy.
And as I read the column in which Mr. Will wholly inadequately
acknowledged his mistake by treating it as if it were almost a clerical
error that he said August instead of April, I reread the column, and it
struck me what a terrible inconsistency it is. This is a column in
which he is attacking Elizabeth Warren. And he criticizes Ms. Warren on
no basis factually once again, and I don't think he has had much to do
with her as I read this caricature of her, but he says in here: Many
members of the liberal intelligentsia agree that other Americans
comprise a malleable, hence vulnerable, herd. Therefore, the herd needs
kindly, paternal supervision by a cohort of protective herders. And he
says because such tutelary government must presume the public's
incompetence, it owes minimal deference to people's preferences. This
convenient theory licenses the enlightened vanguard, the political
class, to exercise maximum discretion in wielding the powers of the
regulatory state.
Mr. Speaker, he has just described the practice whereby bankers get
to pick Federal Reserve presidents to vote on the open market
committee. I don't know many people who believe that. That's Mr. Will's
defense, in effect, and the point is this: he writes one column
criticizing me, sneering in a way, at my objection to there being
banker-selected votes on the open market committee on the grounds,
among others, that this is, in my judgment, a violation of democratic
norms. That's clearly not my real reason, and it's almost as if he
understands why anyone would think that. In fact, here's Mr. Will, who
on the one hand says these preferences are not really theirs. This
convenient theory licenses the enlightened vanguard, the political
class, to exercise maximum discretion. And it says that the public
should not be able to do this.
So here's Mr. Will denigrating and attributing to liberals this
notion that an enlightened vanguard ought to make the decisions as
opposed to the public. That's what he says we think.
Here is Mr. Will in defense of the system by which it happens that
I'm trying to change: Heavy representation of the economy's financial
sector in the governance of the Central Bank does not seem bizarre. Oh,
yeah, I think it is in the governance. In the discussion and the input
of policy. So Mr. Will is critical of me because I did not think that
the banks ought to be picking the people who vote on policy that is so
central to the banks. That's his position when it comes to the Federal
Reserve. But when he gets a chance to attack Elizabeth Warren unfairly,
he takes exactly the opposite position. On the one hand, he is
defending a kind of corporatist--I said the socialist, but it is kind
of a corporatist position that, as he says, means ``heavy
representation of the economy's financial sector in the governance of
the Central Bank''--he's for that, as opposed to my view that nobody
should be voting on monetary policy who hasn't either been elected or
appointed by people who are elected, preferably as I propose, not those
directly elected, but with 14-year terms so you get the independents.
So I'm for a system in which, if you're going to vote on monetary
policy, and if you're going to regulate the
[[Page H6969]]
banking system, you have this ultimate democratic input. He says no,
let's have heavy representation of the economy's financial sector in
the governance of the Central Bank. But then when it comes to, I don't
know, consumer protection, he is accusing liberals of being the ones
who are against the preferences of the public. He says, we, the
liberals, believe that we owe minimal deference to people's preferences
and instead governance should be from an enlightened vanguard. Well,
the enlightened vanguard, in the case of the Federal Reserve, are the
bankers.
So to make his particular substantive conservative point, Mr. Will is
very flexible in his argument. I wish he would have simply said this:
that he does not think--because I think this is what he believes, it
sort of comes out here--that he doesn't think we should have the
Federal Reserve equally concerned with employment and inflation. A
number of conservatives think that. I think that's wrong. I think Ben
Bernanke has been very helpful in doing both. I think that's been
shown. The argument is that if you worry about employment, you'll
sacrifice anti-inflation. In fact, it's the other way around. It's not
a sacrifice, but we've been more successful in fighting inflation than
with regard to employment. But that's a debatable issue.
Whether or not, given even in monetary policy you should have
quantitative easing, whether in a time of severe economic slowdown the
monetary policy ought to be eased, Mr. Will thinks that's ``cheap
money,'' and he sides with the three Federal Reserve presidents,
apparently, who inaccurately predicted it would be inflationary. Again,
those are legitimate policy decisions, but that's not what Mr. Will has
done.
He has, just to summarize, inaccurately described my position as that
of a liberal who is against free speech. I'm not. I have a record of
which I am proud in defending free speech.
{time} 1550
Free speech means, by the way, you defend the right of obnoxious
people to say hateful things. Because if you're not an obnoxious person
and say hateful things in this country, you don't try to shut them up.
I do believe that free speech means that people should be able to do
that. People should be able to say offensive things. And I've got a
record of supporting it.
But he claims that it's because I don't like dissent in the sense of
free speech that in August, after a certain number of votes on the
Federal Open Market Committee, I introduced my bill. So he's wrong
about my views on free speech. He's wrong. I did it in April instead of
August. And he was forced to acknowledge that--it was such a blatant
factual error--not by saying, oh, I made a mistake by making this
assumption of his motives because I thought he did it in August, but
simply throwing it off as if it was kind of a clerical error.
Then, in the whole article he confuses free speech with government
policymaking power. I am very much in favor of free speech. Everyone
has a right in this country to unrestrained speech. Everyone does not
have a right to exercise governmental power. To me, governmental power
should be rooted in the democratic system.
Mr. Will disagrees with that with regard to the Federal Reserve
because he wants bankers--he thinks it's fine for bankers to have that
great role in government; but when he comes to attacking the liberalism
in general, he suddenly reverts to the opposite position and he
denigrates those who aren't ready to respect the people's preferences
and is critical of those who want an enlightened vanguard to go
forward.
I should add that he's not the only defender there who, sadly, to me,
won't stand with legitimate arguments. There is a former Federal
Reserve Governor Frederic Mishkin, who was very critical of my position
that the regional president of the Federal Reserve ought to be able to
speak on policy but not vote on it. What he says is, among other
things, that this will cause a loss of prestige for the Federal Reserve
system and you won't get good people to be there.
I am shocked at Mr. Mishkin's denigration of people in the Federal
Reserve. He describes being the president of a regional Federal Reserve
bank is a very important job with significant regulatory power, none of
which I would diminish.
Then he says because they couldn't vote every couple of years on the
Open Market Committee, it wouldn't have enough prestige for him to
serve. He cheapens them, it seems to me. He also claims that I'm trying
to undermine independence and subject them to short-term
considerations.
I want to stress again, the people in whose hands I would leave
monetary policy are appointed by a President, confirmed by the Senate--
hardly an easy process, as we know, these days--and then appointed for
a 14-year term. So these are not people who are subject to short-term
whims. Of course, a 14-year term goes over three Presidential terms.
We then have Mr. Fisher, one of the regional presidents, who in a
particularly arrogant way, here's what he has to say. We are being
attacked--we, the Federal Reserve--from the right and from the left,
and I don't see much difference between a certain Congressman from
Texas named Ron Paul and a certain Congressman from Massachusetts named
Barney Frank.
Well, the whole language, he doesn't see any difference between
myself and Ron Paul.
Mr. Paul and I worked together on a number of things. We both think
we are way overextended militarily, that we should be bringing the
troops home from Afghanistan and Iraq. We both opposed restrictions on
free speech and we think that people ought to be gambling with their
own money on the Internet. But we disagree fundamentally on economic
policy. We disagree on the Federal Reserve. I have been in favor of
quantitative easing. Mr. Paul has been against it. Those are legitimate
issues for debate.
But you get this smearing, a certain Congressman here and a certain
Congressman there, and he doesn't see any difference. If this man
really can't see any difference between the positions of myself and Ron
Paul on economic matters, then he's hardly competent to be doing
anything, much less voting on Open Market Committee policy.
Once again, what we get is a refusal to debate the merits. And there
are debates to be had. Should we have an equal concern at the Federal
Reserve with unemployment and with inflation? I think we should. Has
the policy of Mr. Bernanke, supported by many others from appointees of
both Presidents and some Federal Reserve regional presidents, to
increase the money supply in the face of this terrible slowdown that
we've been dealing with, has that been a good thing or a bad thing? I
think it's been a good thing. That's debatable. But they won't debate
it.
Instead, we get this collection of illogic, of inconsistency, and of
factual error rallying around the notion of the Federal Reserve system
as being unassailable. Well, too many people made that mistake when Mr.
Greenspan was in charge, and we should not be making it again.
Mr. Speaker, I will continue to press forward. And I hope on the part
of those on the other side we can now debate whether or not it's
appropriate in a democracy for us to do as Mr. Will proposes and to
give the financial community such an important role in the governance
of their own industry or whether we should go for a more appropriately
democratic one; whether Mr. Bernanke's policy has been good for the
economy in terms of quantitative easing; and whether or not we should
abolish the mandate of the Federal Reserve to care equally about
unemployment and inflation. I look forward to debate those, but I hope
in better terms.
The Selection of Voting Members To Serve on the Federal Open Market
Committee
Congressman Barney Frank, September 12, 2011
I have long been troubled by the anomaly of having officials--
selected with absolutely no public scrutiny or confirmation--voting on
some of the most important decisions the federal government makes.
Therefore, I introduced H.R. 1512, which eliminates the role of the
Federal Reserve's regional presidents as voting members of the Federal
Open Market Committee. The Federal Reserve (Fed) regional presidents, 5
of whom vote at all times on the Federal Open Market Committee, are
neither elected nor appointed by officials who are themselves elected.
Instead, they are part of a self-perpetuating group of private citizens
[[Page H6970]]
who select each other and who are treated as equals in setting federal
monetary policy with officials appointed by the President and confirmed
by the Senate.
For some time this has troubled me from a theoretical democratic
standpoint. But several years ago it became clear that their voting
presence on the FOMC was not simply an imperfection in our model of
government based on public accountability, but was almost certainly a
factor, influencing in a systematic way the decisions of the Federal
Reserve. In particular, it seems highly likely to me that their voting
presence on the Committee has the effect of skewing policy to one side
of the Fed's dual mandate--specifically that they were a factor moving
the Fed to pay more attention to combating inflation than to the
equally important, and required by law, policy of promoting employment.
In 2009, I asked staff of the Financial Services Committee to prepare
an analysis of FOMC voting patterns. It confirmed two points. First,
the great majority of dissents, 90 percent--from FOMC policy before
2010--came from the regional presidents. Second, the overwhelming
majority of those dissents were in the direction of higher interest
rates. In fact, vote data confirmed that 97 percent of hawkish dissents
came from the regional bank presidents and 80 percent of all dissenting
votes in the FOMC over the past decade were from a hawkish stance.
When I raised my objection to the inclusion of the regional
presidents as voting members, I was given two responses by defenders of
the current system. Alan Greenspan argued that it was important to have
first-rate people agree to be regional bank presidents and that giving
them votes on the FOMC was an important inducement to getting them to
accept that position. Secondly, others argued that it would be wrong to
have only Federal Reserve governors based in Washington voting on these
things and that there needed to be a diversity of views from other
parts of the country.
The first of these does not seem to me to have much weight. Being the
regional bank president is an important and prestigious job, and I
simply do not believe that we could not find people willing and able to
carry out its responsibilities if they were not rewarded with a vote on
a central matter of economic policy. As to the second argument, for
diversity, it needs to be analyzed further.
It is true that having the regional presidents' vote provides
geographic diversity but it provides far less diversity in every other
way than presidential appointments. In particular, the notion--which I
did hear in opposition to my legislation--that the Federal Reserve Bank
presidents are representative of various segments of our economy is
flatly wrong. The presidents are, of course, selected by the board
members of the regional banks, a majority of whom are selected by
member banks, making this a wholly self-perpetuating operation.
So the important question then is ``Who are the directors of the
regional banks?'' Do they ensure a degree of diversity in the decision
making of the FOMC? The answer is ``No.'' Not surprisingly, given all
the factors involved, the members of the board of directors are
overwhelmingly representative of business, and particularly financial
industry representatives. That is, not only are the regional presidents
appointed and reappointed by people, a majority of whom are elected by
the member banks of each regional bank, they are not in any way
representative of the American economy. They in fact, represent the
very particular segment that elected them. Of the 5 regional presidents
who are currently voting members of the FOMC, all of them were selected
by boards where representatives of private and financial institutions
account for the majority of board members.
Until recently, the tenor of Federal Reserve deliberations was one
that promoted consensus. And while it is clear from the voting patterns
that the regional bank presidents exercise some influence in the
direction of focusing concern more on inflation than unemployment, it
is very unlikely that was a significant factor until recently. But
things have changed. In particular, the Federal Reserve has been
affected by the disdain for consensus and the contentiousness that has
affected our politics in general. It is also the case that the Federal
Reserve has been, for a variety of reasons, thrust more centrally into
policy making than it had been previously. First with the events of
2008 and thereafter in dealing with the fmancial crisis, and since then
in being forced to bear the lion's share of federal economic policy
making in the light of stalemate on the fiscal side.
What all this means is that the voting presence of the regional
presidents on the FOMC has now become a significant constraint on
national economic policy making. The 7-3 vote of the FOMC in August in
favor of keeping interest rates low is stark evidence of how much of a
constraint this is. Obviously it is not a matter of pulling a switch
and achieving a guaranteed physical result. How people in the fmancial
community react to the decisions has a major effect, and a 7-3 decision
is clearly less effective in influencing other's decisions--which is
the way in which the decisions are executed--than a 10-0 vote.
Those who are critical of the Federal Reserve for not doing more--and
I have been one of them--should take this into account and make sure
that their criticisms are not of Ben Bernanke, who in my view has been
trying hard to deal with the situation responsibly, but rather of a
structure over which he presides and where he confronts people
appointed by business interests who do not share the commitment to
equal consideration of the full employment section of the Federal
Reserve's dual mandate.
It is not at all surprising that those appointed by Presidents--
Republican or Democratic--are more supportive of taking action to focus
equally on both mandates, than are those who come from the collection
of business interests who appoint the regional presidents. And the
proof of that is that the record of greater dissents coming from the
regional presidents than from governors is equally the case whether the
governors were appointed by Democratic or Republican presidents.
Finally, one other factor of our current degraded political
atmosphere exacerbates this. That is the refusal of the Republicans in
the Senate to do their constitutional duty and treat the confirmation
process as it is supposed to be treated--namely by looking at the
merits of each individual nominee. The influence of the regional bank
presidents is obviously great when there are seven governors and five
presidents voting on the FOMC. In the current situation, we have an
equal vote between the presidents and the governors and that greatly
adds not simply to the influence that presidents have, but to their
ability to effectively constrain or veto items such as further use of
unconventional tools to promote growth.
I have fmally taken into account the argument that some diversity
from a geographic standpoint would be a good thing, as would diversity
from an occupational or institutional point of view. Just as I think it
is helpful that Members of Congress commute between Washington where we
talk mostly to each other and our districts where we talk to everybody
else, I believe following the British model of having voting members of
the Committee setting interest rates from outside the capital is a good
idea. Soon I will be submitting a new version of the bill in which the
President will be required to appoint seven governors subject to Senate
confirmation as today, but also to appoint four representatives from
regions outside of Washington to come to Washington for FOMC meetings
and vote, also subject to Senate confirmation, but not otherwise
employed by the Federal Reserve system. This will ensure important
policy makers are either elected or appointed by elected officials, and
give geographic and occupational diversity to the views that shape the
decisions that are made.
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