Popularizing Monetary Policy

Three community organizing groups have, “come together to try to do something that hasn’t really been done before: grassroots lobbying of the Fed.”  The groups are Minnesota Neighborhoods Organizing for Change, Action United in Philadelphia, and the Center for Popular Democracy and Dylan Matthews had a great article on Vox about it:

To some extent, the Fed is designed to be impervious to outside pressure like this. Many economists believe that central bank independence — that is, having a central bank that is not directly controlled by legislatures or other democratically elected officials — is crucial to effective monetary policy. In 1993, future Treasury Secretary Larry Summers and his Harvard colleague Alberto Alesina authored a hugely influential paper arguing that countries with more independent banks have less variable prices and lower inflation overall.

…But [The Center for Popular Democracy‘s senior attorney, Ady Barkan] argues that the independence the Fed currently enjoys is one-sided. “There are 108 board members across the 12 regional banks,” he notes. “Under the law, 72 of them are supposed to represent the public interest and 36 are supposed to represent banking and financial interests. But of the 108, 97 are from financial institutions or corporations. Only 9 are from nonprofits, and even those are from major, wealthy nonprofits. Only 2 of the 108 board members represent labor organizations and workers.”

“This desire for Fed independence really only goes in one direction,” he concludes. “It’s a desire for insulation from the needs of regular people.”

Barkan, Brooks, and Raino avoid endorsing specific proposals for the Fed to get tougher on unemployment, like setting a nominal GDP target or abolishing paper money or allowing “helicopter drops.” The emphasis is more on convincing the Fed that there is still a problem — that the labor market still has slack.

While some in the Fed worry that people are getting too many raises, Barkan argues that wage growth is still too slow — and that the labor market won’t be healthy until it’s significantly higher.

Very few people care about who controls the Fed even though it affects our economy much more than the White House or any other institution.  The Fed has a bizarre governance structure that is biased against the median American.  By law, almost 1/3 of the fed’s board members are designated to represent Wall Street.  So by law, almost a third of the control of the Fed is supposed to go to banksters who care more about bank profits than the public interest.  That is already a bad skew that is built in to the Fed’s governance, but it turns out that the other 2/3 of the Fed’s board has been almost entirely captured by Wall Street too.  Our money supply is controlled by 97 people from wealthy financial institutions and corporations versus 11 people from nonprofits or organizations that represent workers.  The minority of Fed leaders who we hope might represent the median American is too small to have much influence.  No wonder the Fed doesn’t care about unemployment and thinks that wage growth needs to be stopped.  For those 97 Fed board members who represent corporate America, wages are a cost that reduce their profits. But for the most Americans, wages are our main source of income and a little wage inflation could help us pay our bills.

This is why the Fed doesn’t care about the median American.  Better Fed governance would create more concern for ordinary Americans and better outcomes.


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