A Modest Proposal for Reining in the Bernanke Fed

Abstract

In the years immediately prior to the financial crisis, the doctrine of an independent Fed had achieved broad and unquestioned acceptance, especially within the economics profession. Under cover of this doctrine the Fed deployed unconventional monetary policies to vastly expand its balance sheet as well as the range of its activities in financial markets. Recently, this unilateral and arbitrary expansion of the Fed’s powers combined with its failure to stimulate a robust recovery from the Great Recession has provoked increasing opposition even among some economists. In this changing intellectual climate, the time is ripe to implement a short-run program, under the existing regime of the fiat dollar, to terminate the Fed’s anomalous status as a quasi-independent agency and make it directly accountable to Congress like any other department or agency of the Executive Branch.