I have been very critical of the Federal Reserve. For a long time.
The central bank has give us more than one hundred years of boom-and-bust monetary policy. And to make matters worse, the booms are false and the busts are real.
Yet no matter how critical I am of the Fed, I know it’s possible to make a bad situation even worse. And that’s why I don’t want Trump or any other president to have direct control over monetary policy.
Simply stated, very few presidents (I can only think of one in my lifetime) would be able to resist the temptation to goose the economy with artificially low interest rates.
I’m not the only one with that view. Indeed, the economics profession is nearly unanimous in thinking politicians should not control monetary policy.
Why are economists so adamant about insulating the Fed from politics?
Because we have lots of evidence that political control leads to a lot more inflation.
Since I’m normally criticizing the Fed, I feel obliged to end this column by state that my opposition to political control of the Fed should not be interpreted as me wanting them to have more power.
Indeed, I’ve condemned proposals to expand the powers of the central bank.
I want to go in the other direction.
In the short run, I want rules that restrict the Fed’s ability to adopt bad monetary policy.
In the long run, I fantasize about a world where the Fed is replaced by private currencies.
