Janet Yellen, Ben Bernanke’s successor as Fed chairman, has asked and answered two important questions:
“Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not.”
“Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make things worse? Yes.”
The future of the US economy will largely depend on whether she is right about this. Unfortunately, there is little or no evidence to support either of her two assertions.
Yellen’s appointment has been greeted with hosannas in many quarters. Economist Mark Gertler wrote: “Just about everyone with any connection to the world of monetary policy is vigorously applauding Janet Yellen’s confirmation.”
Is this true? No. For example, respected economic writer James Grant takes a dim view of Yellen and of the Fed in general: “Central planning may be discredited in the broader sense, but people still believe in central planning as it is practiced by…[ the Fed]…. To my mind the Fed is a cross between the late, unlamented Interstate Commerce Commission and the Wizard of Oz.”
Economist William Anderson compares the Fed and its leaders to Gosplan, the agency charged with preparing economic plans for the Soviet Union, and thinks that it has the same chance of success.
Economic writer Gene Callahan gets to the heart of the matter when he writes that the chairman of the Federal Reserve “is the head price fixer of a price fixing agency.”
Why would anyone say this about the Fed? Because the Fed fixes some interest rates and manipulates others, and interest rates are among the most important prices of the economy.
Ironically, retiring Fed chairman Ben Bernanke has acknowledged: “Prices are the thermostat of an economy. They are the mechanisms by which an economy functions.”
Most economists agree that price controls destroy an economy. But, like Bernanke and Yellen, they often wear blinders which prevent them from seeing that everything the Fed does is a price control.
Hunter Lewis is co-founder of AgainstCronyCapitalism.org, co-founder and former CEO of Cambridge Associates, a global investment firm, and author of two recent books, Free Prices Now!, about the Federal Reserve, and Crony Capitalism in America 2008-12.