by SAMIR SONTI
In the early 1980s, Fed chairman Paul Volcker launched the decisive battle of the twentieth century’s class war. We’ve been living in his world ever since.
Review of Keeping at It: The Quest for Sound Money and Good Government (Public Affairs, 2018).
It often feels like the only people who talk about the Federal Reserve are bankers and cranks. The former pay attention because they have to, reading into every utterance from monetary authorities for clues about which way the financial markets might soon track, fearful of falling one step behind the herd. The latter are simply bizarre. They would just as well abolish the thing, and probably burn all paper money while they’re at it.
There are of course a few more voices in the mix. Progressives have been engaged, even if their efforts rarely make the front page. During his presidential campaign, Bernie Sanders demanded greater transparency within and democratic control over the Federal Reserve. A decade earlier, then-Representative Sanders challenged then Fed Chair Alan Greenspan to “meet real people” before formulating monetary policy, because the “country clubs and the cocktail parties are the exception, not the rule.”
More recently, Elizabeth Warren has implored the Fed to force an overhaul of the leadership of banks like Wells Fargo. The scholars Dean Baker, Sarah Rawlins, and David Stein have sought to recover the legacy of the Humphrey-Hawkins Act of 1978, which tasked the central bank with attending to employment maximization as much as it does price stability. And in the most dynamic grassroots campaign for a progressive monetary policy in a generation, activists with Fed Up have conducted popular education programs and direct actions aimed at shifting the terms of debate on a topic that the financial elite would prefer to remain inaccessible to ordinary people.
So far, the officials who run the Federal Reserve haven’t had much reason to listen. This is mainly because it is among the least democratic public institutions in the United States, even if Fed officials wouldn’t put it that way. In their minds, “independence” is what makes a central bank a central bank. Without the ability to superintend the financial system free of political interference, they wouldn’t be able to do their job. Thus, when Trump did what Trump does, and took to Twitter to question their decision to continue raising interest rates, they were aghast. Fed Chair Jerome Powell, Trump’s own appointee, promptly began fighting politics with politics, making the rounds in Congress and asserting that the best government intervention in central bank affairs is no government intervention.
Fed alumni are concerned too. Former Fed Chair Paul Volcker, in his recently published memoir, Keeping at It: The Quest for Sound Money and Good Government (co-authored with Christine Harper), has expressed his fear of what the institutional decay represented by Trump might portend for the management of money, for the economy more generally, and for the republic itself. But what Volcker refuses to recognize is the extent to which his own leadership of the central bank helped to create the nightmare we’re living in. At its helm from 1979 through 1987, Volcker oversaw a program of financial austerity without precedent, one that inaugurated the unforgiving economic order of the late twentieth and early twenty-first centuries. If Ronald Reagan gets most of the credit, Volcker at least deserves an honorable mention.
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