raghu: > ... The Fed ... falls somewhere along a spectrum between directly elected, > and nominally independent. Even the most independent of government > institutions in the US are in principle subject to oversight by elected > bodies. In practice too, this oversight authority is sometimes used quite > effectually, as in the Congressional audit of the Fed actions after the > Lehman crisis.<
I won't quibble about degrees of "independence." The issue is that the Fed is largely influenced by (and thus not independent of) the banks and Wall Street, so that when orthodox monetary economists talk about Fed "independence," they're talking about weak controls over the Fed by the elected government. This omits the role of the control over the Fed by the banks and Wall Street. When economists push for greater Fed "independence," they are _in effect_ pushing for the Fed to reflect the power and influence of the financiers more. For example, the policy fad of "inflation-rate targeting" (which faded when the financiers got themselves in big trouble in 2008) was a matter of giving the financiers and rentiers what they wanted. (That may not be what was good for them, however. See below.) (As I've noted these weak controls over the Fed by elected officials have a lot to do with the fact that Congress likes to have someone to blame for the economy's messes. As Marv and others have noted, Congress itself is highly beholden to the banks and financiers. So, in theory, Congress could impose its will on the Fed. But it won't (at least not in the foreseeable future). In theory, the European Parliament could impose its controls on the European Central Bank, but it is very very unlikely to do so.) Ragu: >... - The Fed's independence is very much real, though not unlimited.< This avoids the question of "independence from _whom_?", forgetting the real influence that the banks and Wall Street have over the Fed. > - The Fed is NOT independent of democratic authority.< see above. > - While the Fed is subject to the influence of the bankers and financiers, > this should not be overstated. For e.g., there is no reason to believe that > Bernanke's QE or interest rate policies are influenced by anything other than > what his public statements say i.e. inflation expectations and the dual > mandate.< As I've written on pen-l, the Fed acts like a government-sponsored cartel of bankers (allied with the non-bank financiers), using the word "cartel" to refer to an institution which often has to restrict the commodity being sold (here, credit) in order to benefit its members. (Typically the banks' collective goals are identified with that of the "public" in Fed official's statements.) As with any cartel (as here defined), the actual policies of the Fed often conflict with the individual interests of banks and thus even the short-term interests of all or most of the banks. Like any cartel leader, the Fed's leaders try to find out what the long-term collective interests of the banks (and their allies) are and then to express those interests in its policies. As in any politics, the bigger players (e.g., Goldman-Sachs) have more influence, which can make the cartel leader's job much more complicated. Further, as Keynes pointed out, there is always uncertainty about the future, so the policies actually implemented can actually be counterproductive (from the point of view of the collective of banks). For example, letting Lehman fail could easily have been against the long-term collective interests of banks. (There is still debate about this.) The bail-out may not have involved the same kind of conflict, nor does buying up a lot of toxic assets from banks and flooding the latter with reserves. Of course, what exactly the "long-term collective interests of banks (and other financiers)" are can only be determined _after the fact_. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
