Long View--supplemental

Ron Paul (Republican candidate for President) had an interesting op ed piece in the Wall Street Journal yesterday (Thursday, Oct 20, 2011), claiming that our current economic mess is mainly the fault of the Federal Reserve and calling into question the need to have the Fed at all.

It is true that some economists and analysts have blamed at least part of both the Great Depression and the so-called Great Recession (which may or may not be over now) on incorrect monetary policy by the Fed. In the case of the Depression, they are accused of persisting with deflationary monetary policy even as catastrophic deflation was already happening. In regard to our current situation, they are accused of having an "easy money" policy that expanded the money supply too much.

There were booms and busts and banking panics before the Fed was established; the Fed was supposed to be a solution to that problem. But as often happens with solutions, if they are not based on a total understanding of what the problem actually is, the solution itself becomes a problem, often even worse than the original problem. The booms and busts and panics that happened before the Fed was invented were more frequent than, but not as bad as, the ones that happened after.

Having smart people in charge of managing our currency and economy sounds like a good idea, but it could be that the complexity of these things has outpaced the ability of these smart people to understand them. Economic theory, which is always changing, may be behind the 8-ball on these matters.

What would take the place of the Fed if it were abolished is not clear. At any rate, what are the chances of that happening? Slim to none.