Steve Forbes‘ latest Forbes magazine column explains how a leadership change at the Federal Reserve could lead to helpful changes.
THE APPOINTMENT of a new Federal Reserve chairman should trigger a thorough and badly needed examination of that institution’s purposes and the principles on which it bases its actions. That won’t happen, however. For unfathomable psychological reasons, monetary policy is one of those subjects that absolutely intimidate most people, which is why the Fed gets away with extraordinary power grabs and long periods of poor performance with only the most cursory, perfunctory glances from Congress. …
… Here are some areas he can focus on.
–The belief that the Fed can constructively guide the economy’s performance. Economists and policymakers regard as holy writ the fantasy that the economy can be steered, as if it were a car, and that the Fed’s task is to make sure the economy gets neither “too hot” nor “too cold.”
The Federal Reserve, or any central bank, can no more control an economy than long-ago Soviet central planners could. …
… –Belief in the superstition of the Phillips Curve. The Fed clings to the idea that prosperity causes inflation and that inducing unemployment–that is, trying to make millions of people lose their jobs–cures it. …
… –Belief in the hyperregulation of banks–and every other financial institution. With gusto–and egged on by Washington politicians–the Fed and other regulators have been smothering banks with tens of thousands of new rules, ostensibly to prevent another big crisis. If you put aside the fact that banks were the most heavily regulated part of our economy, the inconvenient truth is that if all of these regs had been in place a decade ago, we still would have had a big disaster, because the root cause of it was the weak dollar.
