On OWS and the Fed « LBO News from Doug Henwood
On the Federal Reserve
I have noticed some strange, Ron Paul-ish stuff about the Federal Reserve around Occupy Wall Street. I do want to file a complaint about those.
The Federal Reserve is admittedly manna for conspiracists. It’s a fairly opaque institution that does work for the big guys. But it’s not their puppet exactly. A friend who spent many years at the New York branch of the Fed once told me that within the institution, the thinking is that bankers are short-sighted critters who come and go but the Fed has to do the long-term thinking for the ruling class. So it has more autonomy than the popular tales allow.
The founding of the Fed is also a great subject of mythmaking—like secret meetings involving more than a few Jews. (The conspiratorial mindset often overlaps with anti-Semitic stories about rootless cosmopolitans, their greed and scheming.) There were some secret meetings, but the creation of a central bank was a major project of the U.S. elite for decades around the turn of the 19th century into the 20th. There’s a great book on that topic by James Livingston that I urge anyone interested in the topic to read. It was a long, complex campaign, and not the task of a secret train ride to a remote island.
Although the Fed does put U.S. interests first, it is internationally minded, and consults constantly with its foreign counterparts. This is also rich soil for conspiratorial thinking—that, plus, of course the Jews. (Greenspan. Bernanke. You’d almost forget that 1980s Fed chair Paul Volcker’s middle name is Adolph.) You know the story—dastardly plots involving foreign financiers (with names like Rothschild) whose victims are good patriotic Americans. As anyone who watches the Fed closely, like me, could tell you, that’s just not the case.
And it’s tempting to see this body as controlling everything—it’s complicated and messy to think about how financial markets work, and the Fed’s relationship to those markets. Much easier to think of the Fed controlling everything. But in fact the Fed sometimes reacts to the markets, sometimes leads them, and on occasion fights with them.
In the 1980s, the Federal Reserve under Paul Volcker ran a very tight ship. It deliberately provoked a deep recession in 1981-82 by driving up interest rates toward 20% to scare the pants of the working class. It was a very successful class war from above that led to a massive upward redistribution of income. More recently, the Fed handed out massive amounts of money—I’m not citing actual figures since they’re vague and mind-boggling, but they’re very big—with no strings attached to major banks. Something like this was necessary to keep everything from going down the drain, but it didn’t have to be done so secretly and with no accountability. Banks were basically given blank checks to restore the status quo ante bustum. That’s terrible. You could say the same for the TARP bailout—massive giveaways with no accountability or restrictions. This is all odious.
But more recently, Fed chair Ben Bernanke has been about the only major policymaker in the world pushing for more stimulus for the U.S. economy. He’s not a partisan of austerity, like the Republicans or much of the pundit class. For this he’s earned some criticisms on the right. The right would be happy to let things go down to prove a point. They think we need a “purgation.” I was recently on a panel with a Fed-hating libertarian who invoked the concept of “purgatory,” as if we’ve all sinned. But that would create far more misery than we know now.
There’s a video (#OWS Protester Nails It! Federal Reserve) of an Occupy Wall Street protester calling for an end to the Fed and urging a vote for Ron Paul. It, and the comments, are straight out of the right-wing critique of the Fed. I’ve seen signs calling for that around the occupation. This is bad news. Ron Paul has a coherent political philosophy. He’s a libertarian. He may hate imperial war, but he also hates Social Security and Medicare. The reason he wants to end the Fed is that he wants to get the state out of the money business and return to a 19th century gold standard. A gold standard is painfully austere. The gold supply increases by less than 2% a year. That means tremendous pressure on average incomes. It’s great if you’re a big bondholder, but hell if you’re a regular person. When we were on a gold standard in the 19th century we had frequent panics, crises, and depressions. Almost half of the last three decades of the 19th century was spent in recession or depression. It put both rural farmers and urban workers through the wringer.
We need to democratize the Fed, open it up, and subject money to more humane and less upper-class-friendly regulation. But let’s not sign on with Ron Paul, please. And let’s not join with the simple-minded right-wing critique that blames all of capitalism’s systemic problems on government institutions.