03 Aug 2009

Economists vs. Ron Paul

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Here is an article (HT2 Tyler Cowen) about six economists who oppose Ron Paul’s bill to audit the Fed. (Interesting tidbit: The last economist, Mike Feroli, was in my class at NYU. In fact we were the only two Americans, and used to joke that there would be ethnic cleansing after the preliminary exams. Ah when we were young and carefree…)

I actually think most of what these economists are saying, is correct as far as it goes. If anybody could figure out a way to take a punitive measure against Fed recklessness (i.e. the audit bill) and turn it into a way to empower the Fed and give us more inflation, it would be the U.S. Congress. (Come on guys, impress me.)

The thing that really irks me about these critics, though, is that they don’t even give a nod to why so many people are upset. E.g. Kashyap from U of Chicago says, “The spirit of the Paul bill seems to be that having FOMC meetings live on C-SPAN would be best way to make monetary policy. That would be a disaster.”

No, actually the spirit of the bill seems to be that when you give a guy a printing press, and he uses it to literally hand out over $1 trillion to bankers, thereby diluting everybody else’s wealth, then he should at least give you the names of the people getting those checks for billions apiece. Remember kids, Congress asked Bernanke last December to whom he was giving all this money, and he said it would defeat the purpose of the program if he disclosed the names.

So keep this in mind when Michael Woodford of Columbia says, “It is important to remember that the GAO already has the authority to audit the Fed, and does, except that the bill giving the GAO this authority in 1978 specifically excluded certain aspects of the Fed’s activities from GAO audits — essentially, decisions about monetary policy.”

Re-reading Woodford’s statement, I’m not sure if that’s just a little ironic or complete balderdash. Everything the Fed does is a reflection of “monetary policy.” What sorts of things wouldn’t be? E.g. can the GAO right now, without Ron Paul’s bill, make sure that the Fed employees are paying their taxes? Or that employees who use up too much sick leave get their paychecks docked accordingly?

But the silliest statement was from Robert Schiller, whose housing index blew up under Greenspan’s wise conduct of monetary policy:

The GAO audit proposal is from Ron Paul, who has advocated abolishing the Fed and returning to the gold standard. Maybe people think that this is his foot in the door, a first step in the plan. When King Louis 16 called for a meeting of the Estates General in France, it led to a chain of events that resulted in his beheading!

I wonder what Schiller would have said, had James Madison explained the concept of checks and balances to him.

Last point: Another supreme example of the silliness in all this, is that the economists are saying, “Bernanke needs to have the independence to suck all the reserves out when the time is right.” The public is brandishing pitchforks because of the massive injections of reserves! That’s why the rank and file want to see an audit. They’re not mad about a stingy Bernanke, they’re worried about bailouts for billionaires and the threat of hyperinflation.

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