In Defense of the Fed

The Federal Reserve is an effective institution that has historically prevented runaway inflation and repeats of the Great Depression.
All opponents of the Federal Reserve, from the most reputable and rational to the most angry and sarcastic, need to step away from rhetoric and review the facts more closely. Monetary policy controlled by a knowledgeable central bank is the most effective method for combating cyclical recessions, and the Fed is not actually the evil, mysterious agency that Tea Partiers and libertarians would like you to believe it is. The root of all this hullabaloo about lack of transparency is the unfortunate fact that people simply do not make the effort to understand how it works.
Those who find the Federal Reserve to be a convenient scapegoat argue that monetary policy is useless at best and harmful at worst, but clear-cut empirical evidence has already disproved this fallacy. The best example comes from Paul Volcker’s tenure as the chair of the Fed. Alarming inflation in the late ‘70s threatened to destabilize the dollar, but Volcker and company’s timely use of contractionary policy reigned in climbing prices. This reaction forced a short recession to occur in 1982, but Volcker nimbly switched to expansionary policy, achieving a delicate balance that contributed to the economic prosperity of the ‘80s (which is almost always mistakenly attributed to Reaganomics). Ben Bernanke and his team’s use of quantitative easing and zero interest rates prevented the Great Recession of 2008 from becoming the Great Depression of the 2010s.
Many groups are clamoring for greater transparency in the Fed. However, greater transparency will not solve the problem, because the problem is not a lack of information—rather, it is the lack of patience to understand the available information. Bernanke’s speeches already contain plenty of detailed economic jargon. We will not really benefit from forcing the Fed to publicize nittier and grittier details. People who are hurting from the state of the economy just want to find someone to blame, and politicians have found an expedient target in the Federal Reserve.
Meanwhile, the real culprits are getting away. We need to focus on curbing speculation of all kinds to prevent new bubbles from forming and ensure that the financial sector makes useful investments that actually increase production, instead of gambling on risky, intricate financial instruments, pocketing profits, and passing losses onto taxpayers. We should encourage speculation on useful ventures, like companies that want to develop new technology or expand their production by investing in capital, and discourage speculation for the sake of speculation, like intricately engineered financial tricks to play a market. When there is a capable chairman like Bernanke at the helm, the Federal Reserve is not one of the economy’s problems; it is one of its solutions.
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