At Federal Reserve Banks across the country today, people are chanting three syllables: “End the Fed.” With Bernanke’s announcement of QE3 and Harry Reid’s blocking of the Audit the Fed bill in the Senate, American central banking is getting an unusual amount of attention.
The Fed is secretive, largely unaccountable and very probably counterproductive. That having been said, any action in the short-term beyond a well-deserved full audit would cause more harm than good.
The End the Fed Facebook event likens this movement to that against the Second Bank of the United States back in 1830s. Back then, Andrew Jackson led the charge against the BUS. He thought its paper money evil and unconstitutional and believed the only real money was hard specie, the kind he could put between his teeth and bite. Fundamentally, Jackson and his followers saw the BUS as primarily serving elite, East Coast monied interests. The pro-gold, anti-plutocrat sentiment is alive in today’s protests. Some even claim that monied interests are what changed Reid’s mind about auditing the Fed.
The philosophical foundation for these protests is Austrian economics. While Austrian economists have won Nobel prizes for their scholarship and have occupied positions of influence, the school is generally considered heterodox or subaltern. It is also anti-positivist in that it considers deductions about human behavior better economic predictors than piles of economic data. But its adamantine injunction that government not interferes in the market economy is what makes Austrian economics decidedly out of the political mainstream.
A hundred years after the Second Bank of the United States closed, Herbert Hoover was maligned for not fixing the economy, and FDR was elected on the promise he could. Austrians would argue that the Fed precipitated the Great Depression, and both presidents made it worse. But if the 2012 election has taught us anything it’s that people still think the president can fix the economy. Whether or not that’s true doesn’t quite matter to most people’s persistent belief that he can.
FDR abandoning the gold standard and Nixon completely terminating that connection may have indeed been a huge mistake. But Bretton Woods has made today’s gold standard the full faith and credit of the United States. Even when that credit was downgraded to AA+, investors took shelter in U.S. Treasury bonds. Judge Napolitano is right: we know more about the CIA than the Fed. An audit is long overdue, but outright abolition would destroy investors' faith in U.S. credit and only hasten the economic judgment day so many fear. Maybe restructuring the monetary system as soon as possible is best for the U.S. and the world, but it is not good for any politician. Therefore, it will be prolonged as much as possible — if not by bailouts than by more quantitative easing.
I live about forty minutes west of Chicago, not too far from an End the Fed protest, but I won’t be going downtown today. It’s not just that I generally avoid crowds of enthusiastic people if I can help it, but it’s also that simply ending the Fed would, unfortunately, not be an overnight monetary cure-all.
You can follow #endthefed on Twitter today to track the protests.R