By John Stang
New talk has arisen in Washington about potential cooperation to reform the Federal Reserve system. Both Republicans and Democrats have offered various solutions to the problem. Of course, Ron Paul, who wrote a book called End the Fed, has put forth legislation wanting to do just that. The Hill reports of a few other plans:
Rep. Mike Pence (R-Ind):
Pence’s bill, which he also introduced in the last Congress, would cut the Fed’s mission in half. Since 1977, Congress has handed the Fed a dual mandate of maximizing employment while controlling inflation. Recent steps taken by the Fed in pursuit of the former goal, like near-zero interest rates and two rounds of “quantitative easing,” have earned recriminations from Republicans, who worry the moves could be encouraging inflation.
Rep. Kevin Brady (R-Tex):
Brady’s bill would similarly trim the mandate, but also give the Fed a top-to-bottom makeover. That comprehensive bill would alter the power structure of the Fed, giving more of a say to the presidents of regional Federal Reserve banks across the country, as opposed to the Fed governors based in Washington.
Sen. Barney Frank (D-Mass):
One bill, offered by Frank, runs directly counter to Brady’s bill. Frank has been largely positive about the Fed’s efforts since the crisis, but contends that the regional Fed presidents reflect the interests of the banking industry and exert too much influence on monetary policy. Instead, his bill would have policy set exclusively by individuals picked by the president and approved by lawmakers.
Rep. Marcy Kaptur (D-Ohio):
Another bill offered by Rep. Marcy Kaptur (D-Ohio) pursues similar goals of limiting industry reach. Her measure would cut in half the terms of Fed governors from 14 to seven years, and double the amount of time, from two to four years, a member of the Fed must wait after leaving before taking a job at a bank. It also would prevent long-running vacancies at the top of the Fed by requiring Congressional leaders to send a list of candidates to the president if spots remain open for four months, and requiring the president to nominate someone one month after that.
Rep. Denis Kucinch (D-Ohio):
His measure would house the Fed within the Treasury Department, which would then set monetary policy in a way that keeps the dollar stable.
Each of these plans speak for themselves. The main difference is that Republicans want to either limit the Fed’s power or increase its autonomy at the regional level. Democrats want to streamline the process for nominees to enter the Fed faster or to change the term limits for the Fed governors.
Everyone can see that the Fed needs reform, but finding agreement on how to do that is impossible. Both sides are pretty far apart. Changing term limits is much different than eliminating the Fed altogether. Often in Washington this is the problem. There is a common goal, but how to achieve that goal makes it hard. Another example, everyone want wants to reduce deficit spending, but how can that be accomplished? Should defense spending be cut? Should entitlements be cut or reformed? Within those parameters it gets even trickier. Should Medicare be a voucher system? Should defense cuts be 2% or 10%? Not to mention the dreaded increase taxes question. The point is bipartisanship breaks down not from a common end, but what the means are to that end.