Third Party & Independents Archives

Rand Paul Really Really Doesn't Like the Fed

Rand Paul would like to do away with the Federal Reserve. In the meantime, he’s happy to turn to yet another Washington D.C. government organization, albeit an independent one like the Federal Reserve itself, the Government Accountability Office, to keep the Fed on a tight leash. With around 3,500 employees and a budget of over half a billion dollars per year, the GAO is small fry in beltway terms but does punch well above it’s weight. Ferreting out waste and fraud in Washington is an endless task, but Rand has something broader in mind. What Rand Paul has in mind is making monetary policy accountable to the Congress. That’s a direct repudiation of the independence of the Fed. While it might make sense with this current Congress, which would tend to push the Fed to reduce it’s balance sheet and perhaps tighten monetary policy faster than it seems to be inclined to do under Chairman Yellen, that could change in a hurry with a different Congress, or even the same Congress under different circumstances.

One only has to observe inflationary trends in countries around the world where monetary policy has been dependent on the government in power. It tends to produce disastrous results and lasting damage to the economy. Of course, Rand Paul will say that is exactly what the Fed has done. That is debatable. If one looks at the crisis in America before the creation of the Federal Reserve, collapsing banks and lost savings were as frequent if not more so, than in the Fed years. The grand exception is of course, the Great Depression. And we're still arguing over why it happened and why it lasted so long. A couple of weeks ago, an attack on Paul Rand's Fed ideas in the Washington Post was all about the Austrian School of Economics. As a libertarian, Rand Paul is an adherent to Austrian School economic thinking which would dispose of everything from statistics as reliable economic indicators to most government entities, especially Central Banks and their iron-clad control over monetary policy. The gold standard would be brought back and according to critics, Austrian School economics would plunge us into a deflationary spiral that would be worse than the Great Depression itself. Austrian School adherents call the critics and the mainstream view in general cowardly and pessimistic. As Ludwig Von Miles said, a housewife knows more about prices than a government agency calculating statistics. That might be so, or it might be a dangerous theoretical position to take when empirical evidence is thrown out the window, as the Austrians tend to do.

The Austrian School has introduced some valid concepts like the Marginal Tax Rate, but they seem to function best as fringe critics who may occasionally have valid points about the dangers of printing press monetary policy. Unfortunately, the dollar is strong and inflation nowhere to be seen. Some internal reforms at the Fed, like lessening the New York Fed's dominant position, is likely a good thing. Putting Congress in charge of monetary policy is not.

Posted by AllardK at March 5, 2015 9:19 PM
Comment #390391

Allard good job. To think that this man could actually be in the running for the office of president amazes me. Fringe ideologies being bantered around as if they had merit. To think the monetary system should be in the hands of Congress is laughable at best, If Paul isn’t laughed off the stage as he continues his run for president…. oh hell he is probably the best of the bunch coming from the repubs at this time.

Posted by: j2t2 at March 9, 2015 12:19 AM
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