Arthur Laffer, the recent Presidential Medal of Freedom winner and occasional Peter Schiff gambling partner, made headlines yesterday for questioning the value of an independent Federal Reserve.
As he told CNBC’s Squawk Box:
I don’t understand why the Fed is independent, to be honest,” said Laffer, a former economic advisor to President Donald Trump and former President Ronald Reagan. “Fiscal policy is not independent. Military policy is not independent. Social policy is not. Why should monetary policy, this very powerful tool to control the economy not be subjected to democracy just like every other instrument of government?”
As expected, this quickly came under attack by Fed romanticists who believe that an independence should never be questioned (a faith they grasp on to in spite of the record of both Fed failures and its history of being politically influenced.)
In fact, as Dr. Joseph Salerno has written about over the years, there may be real value in getting rid of the illusion of an independent central bank.
As he wrote in The Austrian:
The desideratum of the Austrian political economist with classical-liberal or libertarian leanings involves the complete separation of government and money through the establishment of a commodity money like gold (or silver), the supply of which is determined exclusively by market forces. Nonetheless, there is great merit in replacing the opaque and pseudo-scientific control of “the money supply process” by entrenched Fed employees and officials with overtly political control of money by elected officials and partisan administration appointees. There are a number of benefits of stripping the Fed of its quasi-independent status and transforming it into a handmaiden of the Treasury, as the American Monetary Institute (AMI) and early Friedmanite reform programs call for.
Of course, a better approach would be to open the Fed up to competition by repealing legal tender laws and exempting parallel currencies from taxes. But, considering other Fed reforms that have been discussed in recent years, Laffer’s suggestion is hardly that outlandish.
