Tuesday, December 4, 2012

Should we abolish the Federal Reserve?

Some day, I promise,  I will read The Creature from Jekyll Island.  Several of my libertarian friends have suggested I read it.

To tell you the truth, I don't know if we need to abolish the Federal Reserve or not. I know a lot about a lot of stuff, but don't know everything. I have opinions about a lot of things, but do not know enough to have an informed opinion about abolishing the Federal Reserve.

I have been reluctant to invest the energy to become adequately informed about the Fed.  For one thing, it seems like many who are passionate about abolishing the Fed are not very well informed about why. When I have a conversations about the Fed or monetary policy with advocates of abolishing the Fed, it soon become evident that many of them have little knowledge about economics. When I mention fractional reserve banking, it soon become clear they don't have a clue about how money is created.  What they really seem to want is for only the government to control the money supply, which should be counter to their minimalist government, free market views.  They know a few facts and some slogans but lack understanding. I have not been adequately challenged to take the proposal for abolishing the Fed seriously.

I have also been reluctant to invest the time an energy into reaching an informed opinion on this matter because of the "kook" factor..  I don't waste energy on conspiracy theories other than to be entertained by them. When one starts talking about the Rothschilds and how the "insiders"  had JFK killed, and other stuff like that, I don't want to go any further. It seems like many of those calling for abolishing it are on the political fringe and prone to conspiracy theory.

Before I am ready to invest much energy into reaching an informed decision on abolishing the Fed, I want to know that is even an issue worthy of being informed about. I would like to see some mainstream economist make the argument. Maybe, a mainstream economist is doing just that. I have not read it yet, but this article from The Journal of Macroeconomics addresses the role of the Fed.

 Has the Fed been a failure?

Abstract

As the 100th anniversary of the 1913 Federal Reserve Act approaches, we assess whether the nation’s experiment with the Federal Reserve has been a success or a failure. Drawing on a wide range of recent empirical research, we find the following:

(1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment.

(2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I.

(3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

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