If "taxation without representation" could rally the colonists against the British Crown in 1776, tight money and ruinous interest rates might be cause for populist revolt in our own day. Federal Reserve monetary policy also has severe social burdens, measured by huge changes in aggregate output, income, and employment. The imperious Fed, much like the English Crown two centuries ago, formulates and carries out its policy directives without democratic input, accountability, or redress. Not only has the Fed's monetary restraint at times deliberately pushed the economy into deep recession, with the attendant loss of millions of jobs, but also its impact on the structure of interest rates and dollar exchange rates powerfully alters the U.S. distribution of national income and wealth. Federal Reserve shifts in policy have generated economic consequences that at least equal in size and scope the impact of major tax legislation that Congress and the White House must belabor in public debate for months. Popularized studies of Federal Reserve performance in recent decades convey the image of the Fed seated in its Greek temple on Constitution Avenue, with Chairmen Volcker and Greenspan elevated to the realm of the gods. From centers of economic power around the nation - Wall Street, Capitol Hill, the White House, and corporate boardrooms - the classical Greek chorus intones its defense of Federal Reserve independence. On the surface, central bank independence seems an eminently reasonable, appealingly simple solution for an agonizingly complex and muddled process of making economic policy in this postindustrial, electronically linked, and computerized global economy. The independent central bank is an institutional concept that complements well the counterrevolution now underway in U.S. budget policy. Washington's fiscal policy is locked into a deficit-cutting mode for the near future, while Congress is determined to retreat from all discre...
