A new Rasmussen poll has 80% of the American public supporting an audit of the Federal Reserve. Only 9% of the public oppose, with the rest unsure.
Unfortunately the poll did not ask specific questions over whether such an audit should cover monetary policy or just the Fed's 2008 bailout activities. So while the poll is likely to keep pressure on Congress, during its conference negotiations over financial regulation, to retain some audit of the Fed, the likely result is that Congress will leave out any real, on-going audit of monetary policy.
After Sen. Bernie Sanders essentially gutted his own amendment, Senator Dodd and the Obama administration agreed to a minor audit of the Fed's emergency lending programs. Ron Paul, sponsor of the House version of the audit, quickly labeled this as a "sell-out". Fortunately Congressman Paul looks to be a House conferee on the bill, so some hope remains of a full audit being included.
Opponents of a Fed audit claim this would undermine the Fed's political independence. Sadly what opponents, including many economists, are missing is that the Fed is currently far from independent of politics. This is again an area where the public gets what the experts miss, as just 20% of poll respondents thought the Fed has acted independently. A full 60% felt the Fed was too much influenced by the President, getting at a crucial point concerning Fed independence: it is independence from the Executive branch that is critical.
Democrats and, not amazingly, many commentators say Republicans are the ones with the worries because they are nominating strange and extreme candidates. Their Exhibit A is Rand Paul, winner of Kentucky's Republican primary for the U.S. Senate.
Well. It may seem strange for a Republican to have opposed, as Paul did, the invasion of Iraq. But in the eighth year of that war, many Kentuckians may think he was strangely prescient. To some it may seem extreme to say, as Paul does, that although the invasion of Afghanistan was proper, our current mission there is "murky." But many Kentuckians may think this is an extreme understatement.
These critical commentators range from David Frum and Commentary to the Huffington Post -- the entire spectrum of the welfare-warfare state. But as Will says, Paul's opposition to the Iraq war is shared by 60 percent of Americans. And plenty of mud was thrown at Paul by his Republican opponents, and Republican voters had this reply:
Reportage in today's New York Times ("Consensus For Limits to Secrecy At the Fed" by Sewell Chan) indicates that more auditing of the Fed is probably in the cards.
Prof. Milton Friedman and Senator Daniel Patrick Moynihan would have most certainly agreed with the thrust of the Senate (S. 604) and House (H.R. 1207) bills sponsored by Senator Bernard Sanders and Representative Ron Paul, respectively. These bills would partially lift the shroud of secrecy draped over the Fed.
Prof. Milton Friedman weighed in on central bank independence in a 1962 essay, "Should There Be an Independent Monetary Authority?" Prof. Friedman's conclusion: "The case against a fully independent central bank is strong indeed." As for letting in some sunshine, Senator Moynihan had this to say: "Secrecy is for losers."
It is being reported that the Senate has reached a "compromise" on Bernie Sanders' amendment to audit the Federal Reserve. This amendment was a companion to Ron Paul's House bill that would have subjected both the Federal Reserve's lending facilities and monetary policy to a GAO audit. The compromise? Drop the monetary policy audit. It is hard to match Ron Paul's reaction: "Bernie Sanders has sold out."
Congressmen Paul is 100% right on this. While it is important to get details on the Fed's emergency lending facility, those decisions are behind us. The public has a right to know who benefited from the Fed's actions, but the reality is that such an audit would change little going forward. The real action is monetary policy.
After having spent seven years as a staffer on the Senate Banking Committee, I can attest that most senators, congressman and their staff have little understanding of the mechanics of monetary policy. Just listen to any random appearance of the Fed chairman before Congress and you will immediately know what I mean. But then, congressman in general don't understand the workings of most federal programs. That is one of the purposes of the GAO: to help explain to Congress how programs work and evaluate how well those programs are working. I can think of no area more in need of such understanding than monetary policy.
Of course, some worry that an audit would undermine the claimed independence of the Fed. For instance, former Hartford insurance exec, now Obama Treasury official, Neal Wolin praised the compromise, claiming the original language would "threaten the central bank's independence from Congress." Sadly, Mr. Wolin is confused about the nature of the Fed. If there is a constitutional basis for the Fed, it is Article I, Section 8's delegation to Congress of the ability "to coin money, regulate the value there of," which Congress has delegated to the Fed. The supposed independence of the Fed is from the Executive branch, not Congress. And one of the very reasons for an audit is for the public to have a window into the dealings of the Fed with the Executive branch, most importantly the Treasury. What Mr. Wolin and others are trying to protect is the favored relationship between Treasury and the Fed. A GAO audit would shift the balance of power over the Fed away from the Executive and back to Congress, who despite its many problems, is directly accountable to the American public.
The gutting of the Sanders' amendment is a huge win for both Wall Street and the Treasury (is there any longer a difference between the two?), and a massive loss and missed opportunity for the American public, and its representatives in Congress, to regain some control over an agency (the Fed) that has acted as a piggybank for both Presidents Bush and Obama.
Tim Carney has a blog post at the Examiner that's worth quoting in full:
The U.S. Chamber of Commerce has issued its 2009 congressional scorecard, and once again, Rep. Ron Paul, R-Tex. — certainly one of the two most free-market politicians in Washington — gets the lowest score of any Republican.
Paul was one of a handful of GOP lawmakers not to win the Chamber’s “Spirit of Enterprise Award.” He scored only a 67%, bucking the Chamber on five votes, including:
- Paul opposed the “Solar Technology Roadmap Act,” which boosted subsidies for unprofitable solar energy technology.
- Paul opposed the “Travel Promotion Act,” which subsidizes the tourism industry with a new fee on international visitors.
- Paul opposed the largest spending bill in history, Obama’s $787 billion stimulus bill.
(Rep John Duncan, R-Tenn., tied Ron Paul with 67%. John McHugh, R-N.Y., scored a 40%, but he missed most of the year because he went off to the Obama administration.)
I wrote about this phenomenon last year, when the divergence was even greater between the Chamber’s agenda and the free-market agenda:
Similarly, Texas libertarian GOPer Rep. Ron Paul—the most steadfast congressional opponent of regulation, taxation, and any sort of government intervention in business—scored lower than 90% of Democrats last year on the Chamber’s scorecard.
Sen. Jim DeMint, R-S.C., had the most conservative voting record in 2008 according to the American Conservative Union (ACU), and was a “taxpayer hero” according to the National Taxpayer’s Union (NTU), but the U.S. Chamber of Commerce says his 2008 record was less pro-business than Barack Obama, Joe Biden, and Hillary Clinton.
This year’s picture was less glaring, but it’s still more evidence that “pro-business” is not the same as “pro-freedom.” The U.S. Chamber is the former. Ron Paul, and the libertarian position, is the latter.
I suspect that on issues such as free trade agreements and immigration reform, I might be closer to the Chamber's position than to Ron Paul's. But to suggest that Paul is wrong to vote against business subsidies -- or that DeMint was wrong to vote against Bush's 2008 stimulus package and the $700 billion TARP bailout -- certainly does illustrate how much difference there can be between "pro-business" and "pro-market." Instead of "Spirit of Enterprise," the Chamber should call these the "Spirit of Subsidy Awards."
Recently, the Federal Reserve has significantly altered the procedures and goals that it had followed for decades. Rep. Ron Paul (R-TX) has introduced a bill calling for an audit of the Fed.
Remarkably, there is significant opposition to such oversight, and the political prospects for undertaking such an audit are relatively bleak. In a new paper, Cato scholar Arnold Kling examines the processes and outcomes on which an audit should focus, and looks at opposition to the audit:
We should document why the Fed took each step, what the expected results were, and whether those results were achieved. ...The profit or loss of the Fed's investments would provide a very helpful indicator of whether the Fed's actions served the economy as a whole or merely transferred wealth from ordinary taxpayers to bank shareholders.
From Franklin Delano Roosevelt's New Deal to Joe Biden's Big F-ing Deal, progressives have led a consistent and largely successful campaign to expand the size and scope of the federal government. Now, Matt Yglesias suggests, it's time to take a victory lap and call it a day:
For the past 65-70 years—and especially for the past 30 years since the end of the civil rights argument—American politics has been dominated by controversy over the size and scope of the welfare state. Today, that argument is largely over with liberals having largely won. [...] The crux of the matter is that progressive efforts to expand the size of the welfare state are basically done. There are big items still on the progressive agenda. But they don’t really involve substantial new expenditures. Instead, you’re looking at carbon pricing, financial regulatory reform, and immigration reform as the medium-term agenda. Most broadly, questions about how to boost growth, how to deliver public services effectively, and about the appropriate balance of social investment between children and the elderly will take center stage. This will probably lead to some realigning of political coalitions. Liberal proponents of reduced trade barriers and increased immigration flows will likely feel emboldened about pushing that agenda, since the policy environment is getting substantially more redistributive and does much more to mitigate risk. Advocates of things like more and better preschooling are going to find themselves competing for funds primarily with the claims made by seniors.
I'd like to believe this is true, though I can't say I'm persuaded. It seems at least as likely that, consistent with the historical pattern, the new status quo will simply be redefined as the "center," and proposals to further augment the welfare state will move from the fringe to the mainstream of opinion on the left.
That said, it's hardly unheard of for a political victory to yield the kind of medium-term realignment Yglesias is talking about. The end of the Cold War destabilized the Reagan-era conservative coalition by essentially taking off the table a central—and in some cases the only—point of agreement among diverse interest groups. Less dramatically, the passage of welfare reform in the 90s substantially reduced the political salience of welfare policy. The experience of countries like Canada and the United Kingdom, moreover, suggests that if Obamacare isn't substantially rolled back fairly soon, it's likely to become a political "given" that both parties take for granted. Libertarians, of course, have long lamented this political dynamic: Government programs create constituencies, and become extraordinarily difficult to cut or eliminate, even if they were highly controversial at their inceptions.
We don't have to be happy about this pattern, but it is worth thinking about how it might alter the political landscape a few years down the line. One possibility, as I suggest above, is that it will just shift the mainstream of political discourse to the left. But as libertarians have also long been at pains to point out, the left-right model of politics, with its roots in the seating protocols of the 18th century French assembly, conceals the multidimensional complexity of politics. There's no intrinsic commonality between, say, "left" positions on taxation, foreign policy, and reproductive rights—the label here doesn't reflect an underlying ideological coherence so much as the contingent requirements of assembling a viable political coalition at a particular time and place. If an issue that many members of one coalition considered especially morally urgent is, practically speaking, taken off the table, the shape of the coalitions going forward depends largely on the issues that rise to salience. Libertarians are perhaps especially conscious of this precisely because we tend to take turns being more disgusted with one or another party—usually whichever holds power at a given moment.
The $64,000 question, of course, is what comes next. As 9/11 and the War on Terror reminded us, the central political issues of an era are often dictated by fundamentally unpredictable events. But some of the obvious current candidates are notable for the way they cut across the current partisan divide. In my own wheelhouse—privacy and surveillance issues—Republicans have lately been univocal in their support of expanded powers for the intelligence community, with plenty of help from hawkish Democrats. Given their fondness for invoking the specter of soviet totalitarian states, I've hoped that the folks mobilizing under the banner of the Tea Party might begin pushing back on the burgeoning surveillance state. Thus far I've hoped in vain, but if that coalition outlasts our current disputes, one can imagine it becoming an issue for them in 2011 as parts of the Patriot Act once again come up for reauthorization, or in 2012 when the FISA Amendments Act is due to sunset. In the past, the same issues have made strange bedfellows of the ACLU and the ACU, of Ron Paul Republicans and FireDogLake Democrats. Obama has pledged to take up comprehensive immigration reform during his term, and there too significant constituencies within each party fall on opposite sides of the issue.
Further out than that it's hard to predict. But more generally, the possibility that I find interesting is that—against a background of technologies that have radically reduced the barriers to rapid, fluid, and distributed group formation and mobilization—the protracted health care fight, the economic crisis, and the explosion of federal spending have created an array of potent political communities outside the party-centered coalitions. They've already shown they're capable of surprising alliances—think Jane Hamsher and Grover Norquist. Suppose Yglesias is at least this far correct: The next set of political battles are likely to be fought along a different value dimension than was health care reform. Precisely because these groups formed outside the party-centered coalitions, and assuming they outlast the controversies that catalyzed their creation, it's hard to predict which way they'll move on tomorrow's controversies. It's entirely possible that there are latent and dispersed constituencies for policy change outside the bipartisan mainstream who have now, crucially, been connected: Any overlap on orthogonal value dimensions within or between the new groups won't necessarily be evident until the relevant values are triggered by a high-visibility policy debate. Still, it's reason to expect that the next decade of American politics may be even more turbulent and surprising than the last one.