Econintersect: Amar Bhide, professor at the Fletcher School, Tufts University, has a column in the New York Times. Bhide wants the Chairman of the Federal Reserve Board to be “boring“. He argues that the rock star personna (Econintersect interpretation) of recent Fed chiefs has been counter productive. Bhide wants a Fed that blends into the background and turns to a more appropriate role: “painstaking boots on-the-ground supervision of the banks under its purview“.
Bhide argues that the Fed is out of its element when it tries to regulate inflation with monetary policy and targeting full employment is even less appropriate. He likens the latter to “attempting vascular surgery with a dull axe“.
In an email to Econintersect, Prof Bhide said that the New York Times Op Ed was prompted by a communication from an “eminent macro-economist” colleague that a previous suggestion made by Bhide and Nobel Laureate Edmund Phelps (July Wall Street Journal column) was “interesting“. The specific quote was regarding authority for “[m]onetary policy given to Congress and only based on hard and proven science“.
Bhide argues for more decentralization of the monetary control function and, in the e-mail, uses the structure of the U.S. judicial system as a suggested model. Action from the bottom up with successive levels of review all the way to the Fed Board of Governors in those cases so contested. Bhide wants more micro in monetary policy with a macro review of only specific highly contested actions. He also suggests the organization of the military has relevance.
Bhide told Econintersect:
…defusing the hazards of concentrated monetary power does not require subjecting the Fed to the whims of a dysfunctional Congress. Think of our courts that are open to the public, highly decentralized, largely independent but not a law unto themselves. Verdicts and can be overturned on appeal and rulings nullified by legislation. Similarly although we dread politicizing the military we don’t leave war just to the generals. The President can relieve them of their command and Congress can cut off funds for unpopular campaigns.
But if Fed accountability is to become more than its chairman’s ritualistic appearances, we have to shift its mission and methods from top-down “macro” to more bottoms up-“micro”.
So my prescription rejects both Hayek’s competitive, privately issued money and Friedman’s centralized control of monetary policy. Rather it reflects Elinor Ostrom’s preference for decentralized, localized joint action and Albert Hirschman’s emphasis on voice.
Bhide told Econintersect that none of what he suggests is in “standard analysis of monetary policy“. He said that eventually he hopes to fill in the details of the generalized arguments. He said:
One day I hope to spell it out.
Editor’s note: Both Amar Bhide and Edmind Phelps have contributed to Global Economic Intersection.
- Wanted: A Boring Leader for the Fed (Amar Bhide, The New York Times, 20 August 2013)
- Central Banking Needs Rethinking (Amar Bhide and Edmund Phelps, The Wall Street Journal, 16 July 2013)