Audit alarms economists

The San Jose newspaper reports:

As of last week, nearly 400 economists had signed a petition urging Congress and the executive branch to respect the independence of U.S. monetary policy, which is implemented by the Federal Reserve through its power to set interest rates, helping control inflation and promote stable prices and employment.

It takes something extraordinary to get that many economists to agree on anything, so we asked one of the petition's early signers, Stanford economist Darrell Duffie, what the fuss was about. ...

Duffie explained that the economists were alarmed by proposals for Congress to audit the Fed's most sensitive activities. Legislation to do that has rapidly gathered support in Congress, and the bills' sponsors say the public has a right to know how the Fed operates and to see how the nation's central bank is spending congressionally authorized bailout money.

Q Why are you and your fellow economists worried about the independence of the Federal Reserve?

A A representative in Congress, Ron Paul, proposed that the Government Accountability Office, which is Congress' investigative arm, be given authority to audit the Fed's monetary actions. There is a long-standing belief, well understood by many, that you want to have a central bank's monetary policies independent of the government.

That is mostly because they have the responsibility to prevent inflation and promote stability. Congress could have shorter-term goals and try to steer the Fed away from an effective monetary policy. It's pretty much agreed among economists that you don't want to interfere with the Fed's monetary policy.

Alarmed? The feds are spending trillions of dollars that we don't have, and nationalizing the automobile, banking, and health care industries, and this Canadian economist is alarmed that Congress wants to have a govt bank audited?

If he is really so concerned about Congress having shorter-term goals, then he should be looking at the long term consequences of the Obama health care plan and the various Obama bailouts. The Democrats seem to be trying to get reelected in 2010, while saddling future generations in debt.

It was the Federal Reserve Bank's short-sighted interest rate policies and bailouts that contributed to the current financial crisis. Perhaps it would not have been able to get away with such bad policies if it had been audited.