RALEIGH – Not content to provoke public anger, distort the economy, and subvert the constitution with a series of wrongheaded bailouts of bloated businesses and state governments, the nation’s policymakers have come up with yet another foolish idea: transfer more power to the Federal Reserve Board to “manage” the American economy.
Bloomberg Business Week reports that a faction of Fed governors and advisors want to set a target long-term inflation rate of about 4 percent, rather than trying to maintain price stability. They argue that by increasing inflation, there would be more room for the central bank to stimulate the economy during recessions, by pushing the cost of borrowing below the inflation rate and thus “effective paying people to take out loans.”
Uh-huh. So in the midst of a weak economic recovery from a recession caused by excessive borrowing, the Inflate Now faction wants to give the government more tools to promote future excessive borrowing. Sounds just about par for the course.
Truthfully, the notion isn’t as much of a departure from recent practice as its proponents seem to believe. Earlier this decade, the supposedly tight-fisted Alan Greenspan and Ben Bernanke played major roles in causing the Great Recession by expanding the money supply far past the point of price stability – keeping interest rates artificially low and thus sucking capital out of productive investment and into the housing and finance sectors, creating bubbles.
The last thing the country needs is to put more power in the hands of politicians in Washington and the financial cartel in New York. They set the stage for the recession through irresponsible fiscal, monetary, and regulatory policies, then prolonged it by a series of bailout and stimulus blunders.
Whatever monetary system would be ideal, the system we have is a fiat currency under the partial control of the Federal Reserve Board. Its only monetary-policy goal should be to maintain the value of the dollar – period. It shouldn’t try to prevent recessions, reduce unemployment, balance international trade, or otherwise manage the daily economic decisions of hundreds of millions of Americans. The inevitable result will be less long-term growth, more short-term instability, and a transfer of power and resources from average citizens to the political class of insiders and special interests.
If you still wonder why so many Americans are so upset with politicians of both parties right now, and why so many are joining together to make their voices heard, you need look no further than this story to discover a clue. They don’t believe our economy suffers from too little central management by a few policy elites. They believe our economy suffers, our nation suffers, when these elites fiddle with market forces and phenomena far beyond their knowledge or understanding.
They’re right.
Hood is president of the John Locke Foundation