This week has seen a flurry of commentary on Audit the Fed, both from politicians and from Fed officials. We covered the opposition from Elizabeth Warren earlier, so now let’s look at what the Fed officials have to say. Leading the charge against Audit the Fed this week is retiring Dallas Fed President Richard Fisher. On Monday he said:
“I’ll be blunt: we are audited out the wazoo,” Dallas Fed President Richard Fisher said on Fox Business Network. “This (bill) is about interfering with the making of monetary policy. I respect the gentleman from Kentucky but he is wrong,” Fisher said of Senator Rand Paul, who backs the bill.
Shall we take a look at Fisher’s assertions?
If you go to the GAO website and search for “Federal Reserve” you’ll come up with a couple thousand results, most of which contain only brief mentions of the Fed. Wading through the past three years worth of GAO publications, you find that most mentions of the Fed come during GAO’s review of the various rules promulgated by financial regulators under the Dodd-Frank Act. The only audits or anything close to audits deal with such things as:
These are hardly hard-hitting topics, nor do they involve auditing the Fed “out the wazoo.”
Monday also saw Federal Reserve Board Governor Jerome Powell deliver a speech at Catholic University’s Columbus School of Law in opposition to Audit the Fed and other proposals to oversee and rein in the Fed’s actions. According to Powell:
…these proposals are based on the assertion that the Federal Reserve operates in secrecy and was not accountable for its actions during the crisis, a perspective that is in violent conflict with the facts. The Fed has been transparent, accountable, and subject to extensive oversight, especially during and since the crisis. We have also taken appropriate steps since the crisis to further enhance that transparency.
Perhaps we should give Mr. Powell the benefit of the doubt since he wasn’t working at the Fed during the financial crisis, but his assertion flies in the face of the facts. Remember when the Fed issued their data dumps? Their attitude was, “Oh, you want this data? Well, here you go, take a look at these thousands of pages of documents. It’s not searchable, there’s no index, and oh yeah, most of the details have been redacted. Enjoy.” The Fed had to be dragged kicking and screaming towards transparency, and the only reason they continue to publish financial transaction data (buried on the New York Fed’s website) is because they were legally required to do so thanks to the (watered down) transparency provisions enacted in Dodd-Frank.
Long experience, in the United States and in other advanced economies, has demonstrated that monetary policy is most successful when decisions are rendered independent of influence by elected officials. As recent U.S. history has shown, elected officials have often pushed for easier policies that serve short-term political interests, at the expense of higher inflation and damage to the long-term health and stability of the economy.
We are fully in agreement with Mr. Powell that putting politicians in charge of monetary policy is a bad idea. But just because someone is unelected doesn’t mean they’re any less a politician. Generals don’t progress to flag rank due to their martial prowess but rather because of their ability to navigate the politics of the promotions process. And anyone appointed to the Federal Reserve Board doesn’t get the appointment because of a devotion to sound money or understanding of good economics but rather because they are going to be someone who does what the President wants and doesn’t rock the boat. Let’s not forget that the Federal Reserve Board is an executive agency and maintains a majority of the seats on the FOMC, which makes monetary policy decisions. Thus monetary policy in the United States today is firmly under the control of the President, not Congress.
Arguments that Congress is looking to influence monetary policy are more a defense of the Fed’s, and by extension the President’s, current power to influence monetary policy than they are an objection to governmental influence over monetary policy. If we were to suggest to Mr. Powell that monetary policy should be free of any government influence at all, that is to say, eliminate the Federal Reserve Board and FOMC, privatize the Federal Reserve Banks, and eliminate any governmental involvement whatsoever in monetary policy, would he agree to that? Of course not. He fully supports the Federal Reserve System and the privileges it enjoys from the federal government.
Finally, today brings more news from Dallas Fed President Richard Fisher, who reiterates his opposition to Congress finding out what the Fed is doing. Fisher’s attitude of “I wish Congress would stay out of my hair so that I can do my job” is a common one among Executive Branch employees.* They fail to understand that their position is created by Congress and that Congress, not the employees, determines what exactly their job entails.
When you work at a job that’s created by Congress, your job is to do what Congress tells you to do, not what you think you ought to do. For Fisher to turn around and try to lobby Congress, who chartered the Federal Reserve Banks in the first place, not to tell him what to do is the epitome of chutzpah. Imagine a worker at a manufacturing plant whose boss asks him how many widgets he’s produced. The worker tells the boss to butt out, it’s none of his business. How quickly would that worker get fired? Fisher may be feeling his oats since he’s stepping down in a month anyway, but his attitude will live on, as not only his successor but also his fellow regional Federal Reserve Bank presidents share his outlook.
What this all boils down to in the end is a fight over control. Should Congress remain in control of the agencies it has created, or should those agencies be able to do what they feel like doing without Congress being able even to find out what they are up to? The Federal Reserve has gotten its way in the past and has been able to bully its opposition to get get what it wants. Operating in the shadows has certainly helped. Now that the Fed has a more prominent public profile, and now that more and more people are aware of the what the Fed does, the movement for greater transparency is advancing. The Fed cannot be allowed to continue doing what it is doing without any effective oversight.
*I am aware that Fisher is not an Executive Branch employee. But as someone employed by an organization chartered by Congress, he shares the same attitude as Executive Branch employees.