Allan Meltzer was there for Margaret Thatcher. When she was accosted by the entire British establishment for pursuing monetary, fiscal reform she called Allan Meltzer for advice. He quietly assured her that reform was an absolute priority. Thatcher calmly moved ahead with an Austrian school supply side reform that created a sustained 25 year boom. He never took the credit for that advice. Now currently serving at the Hoover Institution, his multi-volume work History of the Federal Reserve still proves that titanic efforts in academia happen, even if there seldom read.
He continues to advise Congress on monetary reform. He’s a lone wolf in a denizen of groupthink, but the turn of mind is deeply attuned to the needs of our Republic.
He continues to serve the publics interest in admonishing how the board of the Federal Reserve operates. In his mind, the entire framework underwriting Federal Reserve policy is deeply flawed. For Meltzer and a few others, the FED needs a broader reform agenda, not new inflation targets.
This is significant. Why?
A new inflation target would only serve the interests of multinational companies and over leveraged banks. It would permanently undermine the FED’s already weakened policy positioning. The FED is exhausted and over-extended; we’re simply at the end of unconventional monetary exertion. We need an executive engaged to a policy mix dominated chiefly by fiscal policy, tax/supply side reform. Any further adherence to inflation targets would only institutionalize the obscurantist tendencies of contemporary policy craft. We continually hear rationalized excuses of headwinds and other canards that serve to perpetuate zero growth. Shifting blame to something, anything outside of political control isn’t policy. It’s exhaustion.
A change in the numeric inflation target isn’t reform. What’s needed is a legislative agenda informed from recent policy errors; a review of the Fed’s tools, communicative policies and strategic governance. A new monetary framework would dump Humphrey-Hawkins. It would conceed that money is no longer strictly government policy, but a measuring tool and a repository for sustained value. To achieve this insight the FED and its academic cohorts must confront their own institutionalized reluctance. They must end the hubris that underwrites the authority of positivist science. The groupthink dominating this cohort could begin by quietly incorporating Hayek’s thought of dispersed knowledge and its relation to fatal conceits.
Any new framework would have to concede that monetary policy since the great recession has had one goal, to perform the work of a dominant political class. It succeeded in doing that. But it failed as a functioning institution of this great Republic. The new dogmas of data dependency have kept the FED adhered to artificially high asset prices.
We know from John Taylor that central banks throughout the globe cannot fix interest rates and control exchange rate regimes in an age of globalization (the free movement of capital). But the FED seeks to do just that while licensing ambiguity in the name of forward guidance. The grave concern here is that we’re witnessing a formidable institution treat markets with contempt; as if western civilization doesn’t have independent components constituting civil society. This totalitarian mien of hand and outlook is deeply troubling. It validates hindsight that the foundation of contemporary liberalism is tyrannical.
The U.S. Federal Reserve is now an adjunct to secular militant thought. Because of this turn, the Federal Reserve is poorly positioned to manage new shocks emerging from emerging social, political paradigms of liberty that seek autonomy. The central bank cannot respond with efficacy to new challenges with any credibility. It is an archaic institution that seeks to perpetuate imprimaturs unalloyed from the extended order. It is vulnerable. With its vision inward and weak, it will no longer be able to properly discern how best to rescue the Republic from the wiles of the collective.