My CEI colleague Seth Bailey and I have this letter in today’s Financial Times:
Sir, Henry Kaufman frets that “libertarian dogma led the Fed astray” (April 28). Congress, not free-market ideology, is the real culprit.
One reason is mission creep. The Fed’s original job was to keep inflation low by keeping the money supply in check. That’s it. The Humphrey-Hawkins Act of 1978 expanded that mission to include keeping unemployment low.
Low-inflation monetary policy and low-unemployment monetary policy contradict each other. If the Fed keeps inflation low, then it cannot lower unemployment rates through an artificial inflation-induced boom. If the Fed wants to lower unemployment, it must forgo low inflation. Worse, since a bust always follows an inflationary boom, business cycles become more volatile.
The results speak for themselves. The Fed can control inflation – if left free from political interference. But it cannot also accomplish its other missions, especially through the un-libertarian means of manipulating price levels. Where is the libertarianism?
Ryan Young and Seth Bailey,
Competitive Enterprise Institute,
Washington, DC, US