Next week’s all-but-certain confirmation of Janet Yellen as Federal Reserve chair presents a crucial opportunity to implement bold, progressive ideas in an institution that has for too long done too little to combat the vast economic inequalities in American society. As The Nation’s longtime national affairs correspondent William Greider wrote in our October 7, 2013 issue, Yellen “well understands that much deeper change must be considered to get the economy back in balance.”
Should the new chair need additional ideas as to what exactly should be changed at the Fed, Greider’s articles in The Nation over the past decade would be a helpful place to start.
In “The One-Eyed Chairman: How Greenspan Has Pushed the Right’s Agenda” (September 19, 2005), Greider lambasted the outgoing chairman’s partisanship, irresponsibility and betrayal of ordinary Americans. It is amazing to read Greider’s warnings, years before the 2008 crash, about the inevitable failure of Greenspan’s policies and the implications that would have for the broader deregulatory ideology of which he was for several decades perhaps the most prominent champion. (Greenspan would concede as much with his famous admission in October 2008 that there was “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”)
Beware of economic policy-makers who go to extremes in defense of ideological convictions. Essentially, that is the nature of Greenspan’s grave failure. The real world did not cooperate with his right-wing beliefs, but he persisted anyway. In the hydraulics of monetary policy, his posture set in motion deep waves of economic extremes: fabulous personal wealth alongside a deeply indebted populace; extraordinary corporate profits alongside stagnant wages and surplus labor; too much capital and not enough consumer demand. These exaggerated waves, and some others, are still sloshing back and forth in the US economy. They will for years ahead, with more crises to come. Greenspan collected much praise for his swift and daring rescue missions—the nimble fireman rushing from blaze to blaze, putting out fires before they destroyed the economy. What many people did not understand is that it was Greenspan who lit the match.
In 2009, as the Obama administration was reeling from aftereffects of the crash, Greider wrote “Dismantling the Temple: How to Fix the Federal Reserve” (August 3/10, 2009), which outlined a plan for a more democratic, more transparent, and more effective Federal Reserve.
“A reconstituted central bank might keep the famous name and presidentially appointed governors, confirmed by Congress, but it would forfeit the mystique and submit to the usual standards of transparency and public scrutiny. The institution would be directed to concentrate on the Fed’s one great purpose—making monetary policy and controlling credit expansion to produce balanced economic growth and stable money. Most regulatory functions would be located elsewhere, in a new enforcement agency that would oversee regulated commercial banks as well as the “shadow banking” of hedge funds, private equity firms and others.
The Fed would thus be relieved of its conflicted objectives. Bank examiners would be free of the insiders pressures that inevitably emanate from the Fed’s cozy relations with major banks. All of the private-public ambiguities concocted in 1913 would be swept away, including bank ownership of the twelve Federal Reserve banks, which could be reorganized as branch offices with a focus on regional economies.