If you haven’t seen it yet, I highly recommend you read Matt Stoller’s End This Fed piece. An ideological battle is coming over monetary policy and the Federal Reserve:
Something new is happening around the contours of monetary policy. It’s becoming part of our popular political landscape. We saw this a few weeks ago, when Sarah Palin injected into the 2012 presidential race the idea of fundamentally reorganizing the Federal Reserve’s mandate. Republican Mike Pence, Senator Richard Shelby, and a host of other Republicans have jumped on this concept, and there will soon be legislation introduced to make this happen.
Beyond Republican politicians, the public is beginning to rethink our monetary order. A YouTube video on quantitative easing has over 3 million views. The video slams the Fed for missing the dotcom bubble, the subprime crisis, for being fundamentally undemocratic and unaccountable, and for being engaged in collusive dealings with Goldman Sachs. Financial blogs and CNBC discuss the Fed, and its associated characters, with deep insight and passion…
The defenders of technocracy are out in force as well. Paul Krugman is defending the institution, if not every decision. The Democratic partisan class is going after right-wing Fed critics, while more liberal independents are pointing to the Fed in the 1940s and the Reconstruction Finance Corporation as a very different monetary model. Not since the populist movement of the 1890s has there been this much discussion of monetary structures among the public, and so much dissent about how money is created and circulated throughout the economy. It’s happening for a reason. The public is now paying attention to finance. We ran a focus group in Orlando last year, and one of the surprising conclusions was that nearly every independent voter knew who Ben Bernanke was. People don’t like the structure of our financial oligarchy, and they are talking about it. Even the deficit hysteria and the Fannie/Freddie GSE fights are a function of this monetary debate.
It is good that this debate is happening. It means that we will be able to examine the real power structure of the American order, rather than the minor food fights allowable in our current political system. This will bring deep disagreements, profound ones, but also remarkable possibility. Modern American industrial policy is to push capital into housing, move manufacturing abroad, build a massive defense establishment, and maintain an oligarchic financial sector. This system isn’t a structural inevitability. People built it, and people are unbuilding it. People with names, motivations, and reputations. People like us, and like Sarah Palin.
This debate is going to happen, and it is important that liberals and progressives have things to contribute, narratives and explanations about what needs to happen, what has gone wrong and what has gone right, and how to change a broken, bank-dominated Federal Reserve.
It’s important to have our narrative, because the conservative narrative here is a powerful one, one that aligns the interests of a rigid social order with that of capital and creditors:
As we move forward in this debate, it is important to understand that Sarah Palin is coming from a tradition genuinely rooted in American economic debates, from the era of the late 19th century, when Wall Street came together to finance railroad mega-corporations. Her argument is one against the mutability of money; she rejects the idea that money is a political object, because that implies that it is collective decision making that determines property values and ultimately the social hierarchy. She believes in a natural and fixed social hierarchy, which is a very conservative idea deeply held by the business class. Palin is using the lack of legitimacy of the modern Fed, the failed technocratic screw-ups and the elitist tendencies, to push for the equivalent of a societal debtor’s prison. She is speaking for creditors, and many of the conservative forces within the Federal Reserve agree with her. It is important to understand that reflexively defending the Federal Reserve, which is what the Democratic establishment is doing, is a foolish and anti-populist attempt to pretend that the Fed is a legitimate decision making body. It isn’t. It is powerful, but not legitimate…
The Fed is now less respected than the IRS. And so Sarah Palin has her opening, as do the conservative hard money creditor interests. Liberals should stop their love affair with conservative technocratic myths of monetary independence, and cease seeing this Federal Reserve as a legitimate actor. At the very least, we need to begin noticing that these people do in fact run the country, and should not. We must also begin to internalize the new forces of openness and rethink how a monetary system can function in an internet-enabled society. This will require thinking about Fed 2.0 from the perspective of the social web, as well as building upon the increase in transparency being forced on governing elites by such groups as Wikileaks. The top-down backroom system just won’t work if it relies on retaining secrets between Bank of America and the Fed that a third party or a court can release. The Fed can’t print its way out of a public that has lost faith in the banking system and the dollar. If we rethink money creation properly, however, we will be able to remove money creation from the hands of the oligarchs, and strike deeply at the uncompetitive nature of the American political economy. I do not know how to do this, but it is possible.
Do read the whole thing. One more blockquote:
Take this passage from Greider’s masterpiece, on the inflation battles of the early 1980s.
“When White House officials congratulated themselves on how swiftly inflation was declining, Volcker pulled out his card on union wages and warned them not to be too optimistic. Until labor got the message and surrendered on its wage demands, the underlying rate of inflation would continue to push prices upward — and collide with the stringent reality imposed by the Fed’s money policy.”
Here was the Federal Reserve Chair, a Democrat, carrying around union wage stats in his pocket so he would know whether he was driving worker pay down fast enough. If you want to understand the poverty of the financial reform debate, that Volcker was ‘the hero’ of the reform side should illustrate it.