problems. This country’s wealth is homegrown. And to continue to grow our own wealth, we have to ensure that rural America is not abandoned to corporate farms and toxic waste dumps. We have to work to ensure that rural water quality meets acceptable standards. There must be safeguards so that biotechnology does not jeopardize our ecosystem and so that biotechnological research benefits family farmers and ranchers and not just large agribusiness operations. If we invest in the dirt farmers and the small-business people of this country, we can grow our way out of the economic doldrums. Agriculture and rural America need not be an economic problem; they can be an economic solution. It requires no massive wrenching of the economy, no heavy hand of government, and no artificial tampering with the marketplace. It requires a new, more sophisticated, market-sensitive agriculture based on the people who have consistently proven their value to our economy. It requires the common-sense realization that our most fertile prospect for true economic diversity and growth is the hard work and enterprise of the people of this country. 0 3 Democratize the Federal Reserve BY GERALD EPSTEIN WILLIAM GREIDER’S Secrets of the Temple: How the Federal Reserve Runs the Country has rekindled interest in an old topic: Who controls the Federal Reserve, and who should control it? I believe the answers are clear: the Federal Reserve is controlled by large banks and corporations. Instead, the Federal Reserve should be controlled democratically, preferably by Congress. Currently, the Fed an unelected, unaccountable body representing the interests of U.S. business can virtually veto any macroeconomic policy that a more progressive Congress might enact. As Greider argues, the Federal Reserve is highly insulated from democratic control. Fed policy is not subject to review by Congress. Moreover, members of the Fed are appointed for 14 years, a term that allows them to outlive the political life of at least one President, and sometimes three. Although the Fed’s chair is selected by the President for a four-year period, even that term does not coincide with the President’s time in office. Because it is not held accountable, the Fed is free to engineer policy in the interests of its -natural” constituency large banks, nonfinancial corporations, or both. ‘Workers, farmers, and poor people are left out in the cold. To make the Fed more accountable to the public, the Fed’s Board of Governors should be appointed by Congress with the advice and consent of the President. The presidents of the Regional Federal Reserve Banks should be taken off the Federal Open Market Committee, an important policymaking Gerald Epstein teaches economics at the University of Massachusetts at Amherst and is a member of the Center for Popular Economics. This article is adapted from a version published in Dollars & Sense magazine. body. The Fed should be put under the budget authority of Congress. Finally the Fed’s Governors should serve terms of four years, coinciding with the President’s fouryear cycle. Leaving the Fed’s powers unchecked has had devastating effects on the economy as a whole. During the initial stages of the Great Depression, both Congress and the Secretary of the Treasury demanded that the Fed expand the supply of money to spur the economy. Partly because bankers were worried that looser money would lower interest rates and bank profits, the Federal Reserve refused to comply. Their tightmoney policy contributed to the deepening of the downturn. More recently, the Fed initiated a draconian monetary policy that instigated the worst worldwide recession and the highest levels of unemployment since the 1930s. To make matters worse, far from acting as a lender of last resort, between 1981 and 1985, the Fed let over 300 U.S. banks go bankrupt, and thousands of farmers and small businesses lost their livelihoods. As devastating as Fed policy can be, some argue that making the Federal Reserve more accountable to the voting public would not greatly improve matters. They argue that Fed policy, rather than determining the economy’s health, is primarily reactive. Speculation, debt, and financial instability are serious problems whose roots lie deep in a troubled capitalist economy. In this broader context, monetary policy is relatively unimportant. Furthermore, their argument goes, the Fed’s current policies couldn’t differ much even if a progressive replaced conservative chair Alan Greenspan. A monetary policy looser than the one Greenspan is pursuing would lead to inflation; currency speculation would cause a fall in the value of the dollar, a fall the Fed would have to combat by raising interest rates. A. policy much tighter than Greenspan’s would simply lead to more bankruptcies and the Fed would be forced to lower interest rates. Similarly, no matter who had been Fed chair in 1979, others say, that person would have had to do what Volcker did: impose a draconian monetary policy in order to stop the ravages of inflation. In short, given the Fed’s simultaneous responsibilities of facilitating government’s macroeconomic policy and acting as the “lender of last resort” to prevent banks from going under, the Fed’s hands are tied. Another argument that some cite against democratization is that politicians wouldn’t allow the Fed to act independently of big business, even if it could. The Fed’s Governors share their perspective with the officials who comprise the executive and legislative branches. So placing the Federal Reserve under the direct supervision of Congress would hardly ensure a democratic outcome. After all, what difference would it make if Congress which gave us Vietnam and the contras were also in charge of the money supply? WHILE SUCH A LINE of reasoning contains some important elements of truth, it does not add up to a convincing case against democratizing the Fed. Substantial evidence shows that Federal Reserve policy indeed matters and that a more democratic central bank could and would design better policies. I derive evidence from a comparative analysis of countries with various central hank structures, from a comparison of a different period in U.S. history when the central bank was less autonomous, and from an analysis of options facing recent Fed policymakers. For progressives, keeping unemployment low takes priority over fighting inflation. And, as Goran Therborn, author of Why Some People Are More Unemployed Than THE TEXAS OBSERVER 9
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