Mr. Bernanke's turn as the nation's Professor-in-Chief is a stark contrast to the public roles of his predecessors. Mr. Greenspan and Mr. Volcker liked to keep financial markets and lawmakers guessing about their next moves, in part because they felt it gave them more flexibility. Disclosing little, they were scrutinized much.Here are a few questions we the people deserve straightforward answers to. I doubt if the college students at Morehouse College knew enough about money and banking to ask them during Mr. Bernanke's recent PR speech there.
Mr. Volcker's cigar-chomping performances on Capitol Hill were seen as a metaphor for the smokescreens he threw up to questions about interest rates. Mr. Greenspan, who took over from Mr. Volcker in 1987, did one on-the-record TV interview shortly before that year's stock-market crash and never did another as chairman. He almost never took questions after speeches. He delighted in his ability to obfuscate.
"I spend a substantial amount of my time endeavoring to fend off questions and worry terribly that I might end up being too clear," he joked to a room full of economists more than a decade ago.
Why aren't the Fed's operations completely transparent and open by law? Why do we allow seven members of a Board of Governors to manipulate the nation's money supply in secrecy? Why is the Fed allowed to fix short-term interest rates and heavily influence long-term interest rates at will? Why have we allowed the Fed to give us an annual average rate of inflation from 1970 through 2004 of 10.5%?
We already know all the answers given by the Fed and most academic economists to these questions. But those answers are self serving, disingenuous, and evasive. The Fed and its apologist economists say transparency would "disrupt" financial markets; secrecy is necessary. The Fed and its apologist economists says inflation is necessary because the threat of deflation is just too scary. The Fed and its apologist economists say that fixing short term interest rates is necessary to "stabilize" financial markets.
Secrecy serves those who know the secret at the expense of those who do not. Financial markets are disrupted by surprises, not by information. Fluctuating purchasing power of our dollars---whether up or down---disrupts and impedes economic activity when we don't know it's coming. Financial markets have not been stabilized by the Fed's actions; financial markets have been destabilized. Interest rates are rental prices of using someone else's money. We don't think someone should be allowed to fix the price of bread; why do we think someone should fix the price of borrowing?
The European Central Bank (ECB) has a single, straightforward, transparent objective that is mandated by law; keep the average price level stable. Because the ECB is a creature of the nation states of the European Union, all of whom have different national interests, the ECB is not allowed to manipulate the money supply at will. Members of the EU expect the ECB to do just one thing; avoid inflation or deflation.
Is it too presumptuous to ask the Fed to do the same?