"Raise less corn and more hell," Mary Elizabeth Lease harangued Kansas farmers during America's Populist era, but no such voice cries out today. America's 21st-century financial victims make no protest against the Federal Reserve's policy of showering dollars on the people who would seem to need them least.
Long ago and far away, a brilliant man of letters floated an idea. To stop a financial panic cold, he proposed, a central bank should lend freely, though at a high rate of interest. Nonsense, countered a certain hard-headed commercial banker. Such a policy would only instigate more crises by egging on lenders and borrowers to take more risks. The commercial banker wrote clumsily, the man of letters fluently. It was no contest.
The doctrine of activist central banking owes much to its progenitor, the Victorian genius Walter Bagehot. But Bagehot might not recognize his own idea in practice today. Late in the spring of 2007, American banks paid an average of 4.35% on three-month certificates of deposit. Then came the mortgage mess, and the Fed's crash program of interest-rate therapy. Today, a three-month CD yields just 2.65%, or little more than half the measured rate of inflation. It wasn't the nation's small savers who brought down Bear Stearns, or tried to fob off subprime mortgages as "triple-A." Yet it's the savers who took a pay cut -- and the savers who, today, in the heat of a presidential election year, are holding their tongues.
Grant is right of course and the public in a way is outraged, but in my opinion they are outraged at the wrong people. The public seems intent on finding a scapegoat in the banks and oil companies when the real culprits hide at the Federal Reserve and in a Congress that has abrogated its oversight responsibilities. As Grant points out, the populists of the late 19th century essentially won the argument. The system we have today is largely the one that the William Jennings Bryans of the world wanted. And its failures are blamed on the very market that hasn't been allowed to work as it should.
It is frustrating for people like Jim Grant (and me although I don't claim to be nearly as smart as Jim Grant) that the public doesn't seem to understand that more credit is not the cure for too much credit or that more government is not the cure for too much government. I suspect it will take more dire circumstances for the public to understand that the enemy of economic progress has been found and it is reflected in the mirror of every American who reflexively calls for government intervention for every economic ill that befalls the country.
Read all of Grant's article. It is excellent.