Saturday, April 28, 2012

Oh, My Dear Fed


The role of the Federal Reserve (“the Fed”) has been a sore spot with the American public ever since the housing bubble popped. With the recent drop of gold prices and the Fed’s lack of new stimulative policies, people continue to be skeptical of the Fed’s authority concerning the economy. Despite their recent public relations campaign, there are those still skeptical of their transparency, especially regarding their actions after 2007.

The Fed is an interesting player within the federal government. While the Board of Governors undergoes the same process of confirmation as other executive appointees, they cannot be removed due to their policy views and cannot be reappointed after serving their fourteen years. Congress gives the Fed its authority and have the ability to strike its decisions down, but their decisions do not have to be approved by executive and the legislative branch.

This means that they are not elected, much like how federal judges are not elected. However, due to the strong influence the Fed has on America’s economy, people from presidential candidates to the wonkiest of people are more cynical about their role than they would be with the judicial system. From a plebiscitary point of view, the people did not elect them. Yet, who is to say that the people know best about topics such as the habit formation formation heterogeneity and aggregate asset pricing

From a classical democratic view, all citizens should eventually hold a position within the Federal Reserve. With the size of the American population, however, it seems quite impossible for all the citizenry to do so within their lifetime. From a pluralist standpoint, interest groups should be able to lobby the Reserve so they are properly represented and the intensity of issues can be measured. But is that really the best idea? Matters of money can be the most divisive, and this blogger fears the formation of factions through the hungering of monetary power. The trusteeship vision of democracy seems to be the most positive for the Fed, since elected officials choose who the members of the Board are. However, there are still the twelve regional bank presidents, five of which can vote, who are appointed by the Bank's board of directors with the approval of the Board of Governors.

The idea of a central banking system that is both public and private with such control over our lives is frightening. However, due to the extent of knowledge about fiscal policy that is necessary for such a job, this blogger agrees with the need for such a system. The people who are in power, however? That is a story for another time.

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