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.
Altering the central bank would also give Congress an opening to reclaim its primacy in this most important matters. That sounds farfetched to modern sensibilities, and traditionalists will scream that it is a recipe for inflationary disaster. But this is what the Constitution prescribes: “The Congress shall have the power to coin money [and] regulate the value thereof.” It does not grant the president or the treasury secretary this power. Nor does it envision a secretive central bank that interacts murkily with the executive branch.”
Finally, in a superb November 2012 essay, “The Fed and the Silence of the Left,” Greider encouraged progressives to be more vocal in their support for the Federal Reserve’s efforts to stimulate the economy, especially at a time when conservative voices were trying to convince chairman Ben Bernanke to cut back. Greider approved of Bernanke’s attempts to stimulate lending and spending, but asked “what else can the Fed chair do?” His answer offers many ideas Yellen could consider as a way to take the Fed in a more progressive, democratic direction. “Instead of pumping more money into the banking system,” Greider wrote, “the chairman should figure out how to get it to the sectors of commerce or industry that really need it.” The Fed, he continued,
“…could use its regulatory muscle to unfreeze the risk-averse bankers who are still unwilling to lend—the same bankers whose reckless risk-taking nearly brought down the entire system four years ago. The Fed could create special facilities for directed lending (just as it did for the imperiled banking system) that gets the banks to relax lending terms for credit-starved sectors like small business. If bankers refuse to play, it could offer the same deal to financial institutions that are not banks.
The Fed could help restart the enfeebled housing sector by collaborating on debt reduction for the millions of underwater home mortgages. It could help organize and finance major infrastructure projects, like modernizing the national electrical grid, building high-speed rail systems and cleaning up after Hurricane Sandy—public works that create jobs the old-fashioned way. The Fed could influence the investment decisions of private capital by backstopping public-private bonds needed to finance the long-neglected overhaul of the nation’s common assets.”
With Yellen’s installation as the first-ever chairwoman of the Federal Reserve expected in January, one thing is certain: should she fail to steer the bank in a more progressive direction, it won’t be for a lack of actionable ideas.
* * *
Subscribers to The Nation can access our fully searchable digital archive, which contains thousands of historic articles, essays and reviews, letters to the editor and editorials dating back to July 6, 1865.