Fear of Freedom

"Everyone's trying to get out of Washington, and we're the only schmucks trying to get in."
--Julius Levinson (Independence Day)

A chronic argument in favor of the Fed is that we need an agency that is 'independent of politics' in order to effectively set monetary policy. Here are a few thoughts in that regard drawn from Murray Rothbard's fine little book called The Case Against the Fed.

a) If you take a sphere of government and make it 'independent of politics', then that sphere of gov't becomes a self-perpetuating oligarchy, accountable to no one and not subject to the public's ability to 'throw the rascals out.' If people can not replace a ruling elite, then the ruling elite becomes more suitable for a dictatorship than for a 'democratic' country (p. 5). As such, arguing for complete Fed independence seems some variation of the Jedi Mind Trick...

b) Wouldn't it be suspicious if other regulated industries (insurance, airlines, drugs, etc) demanded unchecked power from state regulators? Yet, we're ok w/ the cozy relationship between bankers and the Fed (p. 7).

c) It is argued that the public has a chronic lust for inflation, and if monetary policy was placed in the hands of gov't officials, politicians would bow to short term election cycle pressures. As such, a 'sure way' to minimize inflation is to have private bankers appoint Fed officials because, according to Fed officials, private bankers 'are among the world's fiercest inflation hawks.' (as cited in New York Times 10/12/93 on pp. 8-9 of Rothbard. Essentially, we need to Fed to save us from ourselves.

I'll leave it up to you to reflect on the validity of that thought process...

Reference

Rothbard, M.N. 1994. The case against the Fed. Auburn, AL: Ludwig von Mises Institute.