No, the Fed Did Not Stabilize the Economy
Commenting on a recent article of mine in The Wall Street Journal, Peter Gartside claims that:
Prior to 1913, the U.S. annual gross domestic product changes oscillated between extremes of approximately plus or minus 15%. After the establishment of the Federal Reserve Board, the limits of GDP oscillations narrowed to approximately plus or minus 6%.
You may well wonder where he got that idea, since there are no official estimates of gross domestic product (GDP) for years before 1929. In the early 1960s, however, John Kendrick and Simon Kuznets bravely attempted to construct such estimates for gross national product (GNP). That would be close enough to modern GDP data were it not for the primitive statistics and technology they had to work with.
The table (after the jump) shows these heroic old estimates for real GNP from 1889 to 1914. In that period, there was only one year (1908) in which the drop in GNP exceeded 6% and none that remotely approaches the “minus 15%” figure of Mr. Garstide’s imagination.
Filed under: Finance, Banking & Monetary Policy; Tax and Budget Policy
Support for Federal Reserve Audit Increasing
Last week Cato hosted a policy forum on “Bringing Transparency to the Federal Reserve,” featuring Congressman Ron Paul. As mentioned in CQ Politics, Rep. Paul’s bill, HR 1207, has been gaining considerable momentum in the House, with currently 244 co-sponsors, ranging from John Boehner to John Conyers Jr. In fact, the Senate companion bill was introduced by Senator Bernie Sanders.
Fed Chairman Ben Bernanke discussed the very topic of Federal Reserve Transparency at Cato’s annual monetary conference in the Fall of 2007.
After praising moves toward greater transparency at the Fed, Bernanke argued that “monetary policy makers are public servants whose decisions affect the life of every citizen; consequently, in a democratic society, they have a responsibility to give the people and their elected representatives a full and compelling rationale for the decisions they make.”
Chairman Bernanke also goes on to argue that “improving the public’s understanding of the central bank’s objectives and policy strategies reduces economic and financial uncertainty and thereby allows businesses and households to make more-informed decisions.” Bernanke’s full remarks can be found in the Spring 2008 issue of the Cato Journal.
Over the last two years, we have seen an almost tripling of the Federal Reserve’s balance sheet to $2.3 trillion, resulting from the bailouts of AIG and Bear Stearns and the creation of 14 new lending programs.
Our recent forum, and Rep. Paul’s bill, bring much needed debate and focus to the issue of Fed’s inner-workings.
Filed under: Finance, Banking & Monetary Policy; Government and Politics
Ron Paul at Cato: ‘Audit the Fed’
When Texas Congressman and former Republican presidential candidate Ron Paul speaks about transparency in the Federal Reserve, he sums up his argument with one simple question. Why not?
“Why in the world should this much power be given to a Federal Reserve that has the authority to create $1 trillion secretly?” Ron Paul asked a standing room-only crowd today at the Cato Institute.
Paul was on a panel of speakers, including Gilbert Schwartz, former associate general counsel to the Federal Reserve, to discuss a new bill that will audit the Fed for the first time in its history. This comes at a time when the Fed’s balance sheet has almost tripled, from just over $800 billion before the financial crisis to almost $2.3 trillion now.
“We will only win when the people wake up and realize that transparency is what we need,” said Paul. “When we know exactly what’s happening, there will be monetary reform.”
Watch the rest of Paul’s comments below:
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