One of the challenging parts of my job here at Cato is that it calls for me, not only to make the case for monetary alternatives, but to comment on current Fed policies. Why is that such a challenge? Because so far as many of my fellow free-market fans are concerned, saying that the Fed should do X rather than Y amounts to endorsing monetary central planning—a major free-market no-no. Their own preferred policy recommendation is simple: “End the Fed.”
Well, I’m not against ending the Fed, provided it can be done without raising havoc, and particularly without harming innocent people, including the many holders of U.S. dollar-denominated assets. My own ideal resembles Milton Friedman’s plan for replacing the FOMC with a computer, the difference being that my computer would automatically provide, not for stable growth of some monetary aggregate, but for a stable level of nominal spending. Whether such a reform would amount to “ending” the Fed is a question of semantics. Anyway, it would be good enough for me, if we ever managed to get there. But in the meantime, I don’t favor a “do nothing” Fed. Moreover, I deny there’s any such thing.
As I write this, for example, the Fed has just announced an immediate, emergency 50 bps rate cut in response to the coronavirus panic. I don’t know if that response is ideal; but despite what many of my libertarian friends think, I’m certain it’s better than no Fed response at all. Nor do I believe that a prudent libertarian case can be made for claiming we’d be better off had the Fed stood pat—let alone vanished in a puff of smoke!
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