Four Things Occupy Wall Street Should Know About the Federal Reserve
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The Federal Reserve is ripe for critique. In fact, the Federal Reserve is a system in desperate need of reform. Occupy Wall Street seems perfectly positioned to apply the pressure needed to mend this hugely important, but little understood institution. Unfortunately, the movement is home to a more reactionary strain of monetary policy analysis too.
In Philadelphia, the first edition of the Occupy Philadelphia Inquirer had “End The Fed, End The Wars” displayed prominently on its front page (“Forget Wall St. as a whole...End the Fed....End the economic slavery”). Several similarly exasperating videos posted to the Facebook page were met with approving comments, while the Occupy Philly website was briefly dominated by a Federal Reserve-bashing activist.
Many people involved with Occupy Wall Street and its spin-offs would denounce such posturing, and rightly so. This variety of fed-bashing is espoused by Ron Paul, a Republican candidate for president who wants to “ Abolish the Welfare State,” repeal Roe v. Wade, scrap the EPA, and end most forms of taxation. Most importantly, eliminating the Federal Reserve, adopting the gold standard and having a tight monetary policy are directly opposed to the occupiers’ key goals: reducing unemployment, easing debt and stemming the foreclosure flood.
Here are four things the Occupy Wall Street movement should know about monetary policy and the Federal Reserve.
1. “Ending the Fed” is a Terrible Idea
First, a quick primer on what the Fed is and what it does. The Federal Reserve is America’s central bank, which means that it supervises the banking system and controls the supply of money. The financial regulatory aspect of the Fed’s mission is a huge mess and the “ Audit the Fed” provision of the Dodd-Frank law is only the first step in sorting it out. But the institution’s other role should be equally, if not more important to Occupy Wall Street. When it comes to monetary policy, the Fed has a dual mandate “to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
There are many legitimate reasons to critique the Fed and how it fulfills its mandate. But the “End the Fed” movement isn’t interested in reform. As one popular Youtube occupier/ranter puts it, “this is all because our government prints too much money...that's fake money that they printed out of thin air...there’s not going to be a middle class in ten years, end the federal reserve...get corporations out of our politics!”
There is no evidence that getting rid of the Federal Reserve would ameliorate any of the problems named above, or any of the other issues the Occupy movement is organizing against. In fact, it would probably make everything worse.
“If tomorrow we closed the Fed and started using a gold standard, it would be so chaotic nobody would know what to do,” Ron Paul said in a recent interview. And remember that the United States dollar is the most popular reserve currency in the world. As a general rule, throwing the global economy into economic turmoil isn’t a good idea.
“Countries generally don't ever eliminate their central banks, but they do sometimes eliminate their monetary policy independence,” says Matthew Yglesias, a blogger for the Center for American Progress, who frequently writes about the Fed. “The United States used to have a gold standard instead of discretionary monetary policy. That meant that the value of a dollar would ebb and flow with the discovery of gold mines. The problem with [this] kind of setup...is that you can't respond to economic shocks, and when depressions happen they're really severe.”