Wednesday, August 13, 2008

Robert Reich Hates the Fed

Robert Reich has a post today lamenting the power of the Fed. Of course, he dislikes the power of the Fed for different reasons than I but at least he finally understands that they are the problem:

Chinese authoritarian capitalism, on display this week in Beijing, has me thinking about America’s democratic capitalism and how we practice it.

Start with the U.S. economy’s most powerful government agency: The Fed, of course. Its decision this week to hold short-term interest rates steady was wrong, in my view; it should have lowered them because recessionary forces continue to increase while wage-price inflation doesn't exist. Wages are dropping in real terms. But my opinion and your opinion count for nothing. The Fed is not directly accountable to American voters, or even to Congress or the President.

In Robert Reich's world the solution to inflation is more inflation. How that works, I'm not sure. He might be right that if the Fed lowered rates more and cranked up the printing press, that wages would rise. Of course, prices would also rise, so I'm not sure how that is supposed to help the working man/woman.

He's right that the Fed has too much power, but he offers no solution. You can't make the Fed more responsive to politicians. Can you ever imagine Congress urging the Fed to raise interest rates? The only answer to limiting the Fed's power is to adopt a gold standard and Reich will never advocate that. A gold standard would drastically limit government spending and since he sees every problem as an excuse for more government, a gold standard is not possible.

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