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Setting the Record Straight on the Federal Reserve Board
"All the President's Central Bankers," by Sylvester Eijffinger and Edin Mujagic, is far too soft on the contemporary Republican Party in the United States, and as a result underrates the real problems any progressive viewpoint has in getting translated into policy.
For example, the authors compare Barack Obama's Federal Reserve Board of Governors appointments to George W. Bush's Supreme Court appointments. One could only wish. Where Bush's appointments of Samuel Alito and John Roberts (two, not three) were deliberate attempts to lock in extreme right-wing legal perspectives on the court for decades, Obama invested substantial political capital to appoint a conservative Republican originally put into office by George W. Bush. And his other appointees have been moderates who can expect relatively brief tenures compared with Supreme Court justices.
The authors imply that, by keeping rates low, the Fed is "falling in line with Obama's policies." In fact, when you have four years of unemployment with significant inflation nowhere to be seen, this is what standard prescriptions for central banking would suggest. It's simply not controversial. If anything, Bernanke's embrace of a two percent inflation target -- a rate lower than all but one year of the rates during the Bush I and Clinton administrations -- demonstrates that the Fed cares little about curing unemployment and assisting the president.
Despite the authors' insistence that in recent years the "United States has made scant headway in curbing inflation," the record shows the opposite -- inflation remains low and some growth has begun to occur. For an example of where obsession with possible future inflation has driven policy, one need only look to Europe, which has ended up with neither inflation nor growth.
A name that appears nowhere in the piece -- presumably because it would refute the authors' argument -- is Peter Diamond. Diamond, of course, is the Nobel Prize winner whose recent appointment to the Fed was deep-sixed by Senate Republicans because such noted experts as Richard Shelby (R.-Ala.) felt that Diamond did not know enough about macroeconomics. The president did not lift a finger to help him, by, say, using a recess appointment. Ask Diamond whether Obama has been able to "stack" the Fed.