A Monetary Commission to Review The Fed’s Real World Impact
We pixel-stained wretches of the Mass Media lately have been busy as ever transfixing you with spectacles. Meanwhile, something really important — softly outside the melodrama — has occurred. Trillions of dollars — including your dollars — in the real economy and in the stock and bond and commodity markets — are at stake.
Rep. Kevin Brady (R-TX), Vice Chairman of the bicameral Congressional Joint Economic Committee — Congress’s own resident “Think Tank” — recently, without fanfare, introduced a potentially transformational piece of legislation in the House. This action was followed by introduction in the Senate by Sens. John Cornyn (R-TX), Rand Paul (R-KY) and Ted Cruz (R-TX).
This matters. Welcome the prospect of a Centennial Monetary Commission.
This process promises to chart the course out of what others have called “uncharted territory” and I have called “The Little Dark Age” of economic stagnation. It portends to put America, and the world, back onto the road to economic flourishing for workers. (Full disclosure, I long have been a proponent, including on Capitol Hill, of just such a Commission, including in my professional capacity as Senior Advisor, Economics, for the nonprofit American Principles In Action.)
The Commission addresses the invisible missing element whose absence is retarding equitable prosperity. Fire, including the fire of industry, has three key components: fuel, heat, and oxygen. Most of Washington worthily but futilely is obsessing, in grappling with economic policy, on the visible: the fuel and the heat. Oxygen is invisible: colorless, odorless, and tasteless.
Monetary policy is comparatively invisible. Good money, as crucial to job creation, consequently has received insufficient attention. It takes extraordinary smarts to discern bad dollars as a primary culprit behind workers’ douleurs. Now, a small but influential group of officials, including Kevin Brady, 29 House co-sponsors, Cornyn, Paul and Cruz, are proposing to get to the very root of our stagnant economy: mediocre monetary policy.
Very much include among these economic statesmen House Financial Services Chairman Jeb Hensarling (R-TX). Hensarling almost certainly is the most astute financial thinker in our national legislature since the departure of his mentor, Sen. Phil Gramm.
Chairman Hensarling has promised to scrutinize the Fed. Hensarling announced, at a presentation at the Cato Institute during the 113th Congress, that
the House Financial Services Committee intends to reexamine all conventional wisdom dealing with the Federal Reserve…. And not the least of which is the entirety of their [the Fed’s] hundred year history….
Could it be that the Brady-Cornyn Centennial Monetary Commission is what Mr. Hensarling then was hinting?
Moreover, the House Financial Services Subcommittee on Monetary Policy and Trade, under the chairmanship of Rep. Bill Huizinga (R-MI) — another economic statesman — held a hearing on July 22 “Examining Federal Reserve Reform Proposals.” This hearing addressed, together with legislation on Fed transparency and accountability, the Commission.
Chairman Hensarling really nailed the key issue in a release on July 15th:
One way our economy could be healthier is for the Federal Reserve to be more predictable in the conduct of monetary policy. During periods of expanded economic growth like the Great Moderation of 1987-2003, the Fed followed a more clearly communicated, understandable, and predictable convention or rule. America prospered.
The Empire, in the person of Fed Chair Janet Yellen, struck back.
“I think we need a systematic policy,” Yellen responded. “But I would strongly resist agreeing to follow any rule where the stance of monetary policy depends on only the current readings of two economic variables, which is what your reference rule relies on.”
Dr. Yellen’s statement did not necessarily imply animus toward the creation of a Monetary Commission — one to which she, by the terms of the legislation, has the power to appoint an ex officio Commissioner. The Commission’s charter is neutral, leaning neither for nor against the Taylor Rule to which she appeared to be referring in her testimony.
The Commission meticulously is designed empirically to study the real world outcomes of: “discretion in determining monetary policy without an operational regime; price level targeting; inflation rate targeting; nominal gross domestic product targeting (both level and growth rate); the use of monetary policy rules; and the gold standard.” The Commission is chartered neither to “End the Fed” nor to “Audit the Fed.”
The Commission isn’t hostile to the Fed. Nor is it designed to impair the Fed’s autonomy. The Fed now, almost universally, is seen as in “uncharted territory.” The Commission, simply, is designed to chart the territory.
The Commission is chartered to be impeccably empirical, to
“examine how United States monetary policy since the creation of the Board of Governors of the Federal Reserve System in 1913 has affected the performance of the United States economy in terms of output, employment, prices, and financial stability over time….”
Sounds to me like an exercise in filling Dr. Yellen’s prescription of “a systematic policy.”
We workers have not flourished since Reagan and Clinton, the era of the Fed’s “Great Moderation.” We have struggled, under both a Republican and Democratic administration, through 15 years of miserable economic growth.
There are a tiny handful of policies which determine whether or not we have a climate of equitable prosperity. What happened 15 years ago? Tax policy did not dramatically then change. Neither did trade, regulatory, or spending policy, not in such a way to explain the withering of the American Dream.
One thing only changed 15 years ago: monetary policy. The Federal Reserve drifted from its policy of the “Great Moderation” put in place by Fed Chairman Paul Volcker. Economic stagnation is not of necessity the New Normal. Stagnation is the result of bad government policy.
As for the spectacles with which we Media Types regale you: call them Media Circuses. Come election time what matters most will be the bread, not the circuses.
Co-sponsorships in the Senate by Sens. Paul and Cruz are especially significant. Sen. Paul has laid down another marker on tackling the role of the Fed in job creation. He also was the first Senate co-sponsor of the Monetary Commission in the 113th Congress. He is the prime Senate sponsor of “Audit the Fed.”
Sen. Paul’s credibility on this highly relevant issue cannot be denied. Should he take the “money issue” into his presidential campaign it could prove a game changer. (Full disclosure, one of my sons is a volunteer for the Rand Paul presidential campaign.)
“Audit the Fed” appears thwarted by the opposition of Sen. Bob Corker (R-TN) and the Senate Banking Committee Chairman Richard Shelby (R-AL). Chairman Shelby was reported by Bloomberg to have said
“We shouldn’t play politics and we shouldn’t make monetary policy, but we should do strong oversight….”
The high integrity Commission legislation, which is in no way designed to play politics or to interfere with the Fed’s independence, could be just what Sen. Shelby is looking for.
Meanwhile Sen. Cruz shows himself to have an exceptional grasp of the key importance to job creation and equitable prosperity of Fed policy. He included a demand for a “sound and stable dollar” in the statement of critical priorities he set forth nationally in USA Today late last year.
“Ironically… one of the ways [Reagan] won the Cold War was by strengthening the dollar, which caused the price of oil to plummet.”
This observation is of more than casual interest.
I was a junior member of Jack Kemp’s original supply side network pushing for the restoration of the integrity of the dollar. And I was detailed as a deputy general counsel to President Reagan’s White House (working on entirely different matters). One could quibble with a well-intended attribution of an intention by Mr. Reagan to weaponize the dollar. But that quibble would be incidental.
Ted Cruz has a unique personal understanding of the impact of dollar policy on the circumstances of private citizens. One of the most important attributes of a presidential aspirant is his status as a man (or woman) of the people. Sen. Cruz’s personal narrative, and intuitive grasp of the power of monetary policy on workers and small business owners, must not be underestimated as a potential electoral asset.
President Dwight David Eisenhower famously once invoked the adage
“The urgent (problems) are not important, and the important are never urgent.”
Rand Paul, Ted Cruz, John Cornyn, Kevin Brady — and, eminently, Jeb Hensarling and Bill Huizinga — have claimed the statesmanship mantle. These officials are going in quest of the oxygen needed to end the “Growth Gap” and put America, and world, back on track to the kind of economic flourishing we have not enjoyed since Reagan and Clinton.
Do you care about your, and your children’s, economic well-being? If you do, keep your eye on the Centennial Monetary Commission. Trillions of dollars, some of them yours, are at stake.
Originally posted on Forbes.com.