The Past Speaks

George Washington is the pseudonym of a blogger over on Zerohedge. In a recent post, he correctly demolishes the oft-repeated claim that the Federal Reserve is completely apolitical. He points out that it is highly political and provides some great examples:

• The Fed offered to bail out Mexico, if it would agree to join the North American Free Trade Agreement (NAFTA). Free trade deals have nothing to do with the Fed’s mandate

• A study published in the Southern Economic Journal shows that Fed policy tends to create a better economy in the 3 years before presidential elections than right afterwards … to help the incumbent get re-elected

• The Fed is not independent … it is owned by the big banks

• The Fed’s main program for dealing with the financial crisis – quantitative easing – benefits the rich and hurt the little guy, as confirmed by former high-level Fed officials, the architect of Japan’s quantitative easing program and several academic economists

George Washington’s is correct. The Fed is far from apolitical. The thing is, the pattern he has observed is not unique to the United States. Every central bank is politicized, as is every existing financial and monetary system. Fiat money is itself as deeply political artefact. The politics is baked into it. Indeed, even if we could have a world without central banks, money would still be inherently political, as long as there were sovereigns capable of interfering with the issuance of currency by private banks. Indeed, there is some evidence to support the anthropologist David Graeber’s view that money was first created by sovereigns so as to control their subjects. (He makes this argument in Debt: the First 5,000 Years).
The real question is: what can we do to depoliticize money and/or ensure that the institutions that shape monetary policy are designed so as to benefit the majority of the population? Alas, George Washington doesn’t really give us any answers to these tough questions. Pointing out that the Fed is highly politicized is like shooting fish the barrel. I’m disappointed that George Washington didn’t propose, you know, actual solutions.

I’ve noticed a pattern in the blog posts by “George Washington.” He throws lots of mud, makes lots of attacks, but doesn’t ever propose concrete solutions. ZeroHedge can do better. So can George Washington.