SecondThoughts

Has the Federal Reserve Become Too Powerful?

To Mr. Mason's first point, I'm not convinced that any of the "new" objectives actually conflict in the ordinary course of conducting policy. I have to add that caveat because, clearly, what has been happening is not "ordinary". For example, saving Bear Stearns (a joint action with the Treasury that simple had to be done) was extraordinary and required actions that the Fed would not have had to pursue under "normal" circumstances. It could be argued that having broader and multiple policy directives, ala the Treasurer's proposal for example, under "one roof" could have improved the government's policy action to the growing crisis. I'm suggesting that having disparate agencies (Treasury, Fed, SEC, Comptroller, etc.) responsible for the various aspects of monetary policy more broadly characterized has been a source of delay and inadequacy.

To be clear, I don't see how the accepted inflation priority conflicts with sound management oversight of the actions and activities of any intermediary that handles the nation's credit.

Finally, I don't see how adding to the "power" of the Fed (see Mr. Mason's last paragraph) necessarily has to dilute its ability to carry out any of its responsibilities. There has been a tremendous evolution in world finance since 1913, which is the year the Fed was created (if I remember correctly). In the interim, politicians have responded to various crises with legislation to handle each of those crises. The time is ripe to reconsider the structure of all these multiple agencies, with their different agendas, constituencies and leaders, to assure ourselves that our governmental infrastructure is in some sense "optimally" configured to address the world of finance we live in now.

I have been a respondent to several SA articles but have never had a response from the original author. I ask Mr. Mason to respond; I value his insights.