Foreign Policy Interview with Scholar Allan Meltzer Highlights America’s Economic Problems
A recent interview between Foreign Policy magazine and economic scholar Allan Meltzer should be ready by anyone who holds on to the notion that the economy will be fine in the short term. Meltzer describes a scenario where the Federal Reserve is reliving the oscillation of the 1970s between a primary concern with inflation to an equal concern for unemployment. Meltzer’s assessment of the overreaching of Congress as well as the subservient nature of the Federal Reserve is spot-on in explaining our economic woes.
Meltzer attributes the current economic downturn to deregulation of private finances and the Federal Reserve’s response to public pressure with interest rate decreases. It is clear that Meltzer’s first point follows the historical path of America’s economy going back to our origins. The notion of a Federal Reserve was argued within Congress and political circles going back to the Reconstruction period. The debate over the use of gold or silver as a primary financial tool in America raged at the end of the 19th century. These debates do not take place today because we are more comfortable with credit cards, fiat currency and a federal government that shuffles papers during economic hard times.
The latter point by Meltzer shows the lack of independence by “independent? bodies within the federal government. The Federal Reserve should act as an independent arbiter of America’s finances in the same way that the Supreme Court is designed as an insulated judicial body. The larger point, however, is that the Federal Reserve cannot solve all of our economic problems. We need to deal with state and federal budget deficits as well as household budget problems to get the economy back on stable footing.
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