June 30, 2009

IN RESPONSE TO THE EARLIER RON PAUL POST (with cool photo!) Jason Whitworth writes: “Would you please point out that if Ron Paul succeeds in disbanding the Fed, that Nancy Pelosi would be in charge of monetary policy. Putting monetary policy back into the hands of the politicians at this time would be economic Armageddon. I sympathize with Libertarians. They are right about out-of-control spending. But like most economic populists, they are misguided and chasing after the wrong target. Please warn them. Or have Megan McArdle or some authoritative economists point out their folly.”

Well, that was the argument for making the Fed unaccountable — and one criticism of Bernanke is that he’s too responsive to the politicians. But I think (Paulites help me out here) that Ron Paul would address this by putting us on the gold standard, so that the money supply wouldn’t be under the control of politicians at all.

UPDATE: A hedge-fund reader (not, I believe, a Paulite) writes: “The stated Paulian goal is to end the current de facto political control of money, which uses the Fed as a beard, and return us to a gold standard. The illusion of Fed independence is hopelessly compromised now, an ironic outcome that has to rank among Ben Bernanke’s worst fears.”

Various readers protest the unworkability of a gold standard, a view with which I tend to agree. But the question is, is the Fed in its current state any more workable? Its success has depended on trust in the independence of institutions and people in the face of political pressurs, a trust that now seems hard to muster.