Tuesday, January 13, 2009

Time to Change the Federal Reserve

by Norman Markowitz

Ben Bernanke, Chair of the Federal Reserve is "warning" Congress that "fiscal stimulus packages" meaning social spending and tax policies to increase purchasing power will not be a long term solution to the "credit crisis." Rather he is suggesting that more extensive bank bailouts may be necessary.

Bernanke isn't opposing the present bailout, but it is or should be obvious that he is still thinking in terms of reviving the financial system that he inherited from Alan Greenspan, since he isn't talking about serious reregulaton or any serious connection between finance capital "bailouts" and the job and income security except "old time trickle down religion" which was good enough for Coolidge and Hoover, Reagan, Clinton, and the two Bush presidents.

It is time for Congress to write a new national banking act that makes the chair of the federal reserve directly accountable to Congress and the President and gives the President with the consent of Congress the right to appoint and remove Federal Reserve chairs. It is also time to have the Federal Reserve work in concert with the Treasury and the Federal Government as a whole as part of a national economic program.

Although the "monetarism" most associated with the late Milton Friedman and carried forward in the U.S. by Alan Greenspan on the Fed has failed completely, a point that President Elect Obama made during the campaign without specifically mentioning monetarism or Friedman, monetary policy in conjunction with fiscal policy remains important in both containing the economic crisis and developing a healthy national economy based on higher real wages, greater overall labor skill, and greater income inequality, not mountains of debt and deepening income
inequality which has characterized the last thirty years of U.S. economic policy.

The Obama administration is hitting the ground running by focusing on the economic crisis and preparing to deal with it in its first days. This compares very favorably with Bill Clinton, who began his administration as if he had a hangover, half-heartedly and unsuccessfully advocated a modest fiscal stimulus package and then went on to one domestic policy disaster after another, seeking to win over the Republican opposition who handed him his lunch while he alienated the progressive mass constituencies of his party.

But Obama has a much taller order than just being a lot better than Bill Clinton or Jimmy Carter. Large numbers of Americans, and not just older Americans, expect him to be another Franklin Roosevelt, an agent of major , progressive change , of a new age of social-economic reform that will make future generations of Americans remember Ronald Reagan and George W. Bush the way Calvin Coolidge and Herbert Hoover were remembered after WWII, as relics of a discredited period of history.

Obama, like Franklin Roosevelt, has talked about "action and action now." He should start next week, both with fiscal policies to confront the economic crisis, policies to protect workers and
homeowners and regulate the way that the banks use the billions that they are getting, and also policies that change the Federal Reserve system, so that the chair of the Federal Reserve will no longer be the second most powerful "public official" in the U.S. with no serious accountability to the elected federal government.