[Congressional Record (Bound Edition), Volume 157 (2011), Part 11]
[House]
[Pages 15640-15644]
[From the U.S. 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 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

[[Page 15641]]

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 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

[[Page 15642]]

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 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.

[[Page 15643]]

  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 
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

[[Page 15644]]

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 finally 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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