By Anthony Burke Boylan – While Ron Paul’s nonconformist tendencies are a matter of record, the Huffington Post isn’t a publication his followers take very seriously.
But they may change their minds.
As Texas Congressman Ron Paul is scoring political points among his brand of libertarian, outsiders by offering a bill for an extensive audit of the Federal Reserve – and a provocative book calling for its end – he’s found support in a scathing Huffington Post article that accuses the Fed of corruption so rampant it warrants a RICO investigation.
The article, “Priceless: How the Federal Reserve Bought the Economics Profession,’’ says the Fed uses its sheer size and robust “research’’ budget as a form of soft bribery on an overwhelming percentage of economics PhDs.
The Federal Reserve will spend $433 million in 2009 on analysis, research, data gathering and studies on monetary policy, according to the article – a windfall that will be spread around enough to reach the majority of monetary economists in the U.S.
To support the assertion HuffPost quotes Robert Auerbach, a former investigator with the House Banking Committee and author of "Deception and Abuse at the Fed". He concludes there are no more than 1,000 to 1,500 monetary economists in the country. The Fed’s Board of Governors employs 220 off them and contracts research from another 500 or so. Add those who have worked for the Fed or someday hope to, and you have a significant majority of the field – including many of the very economists who are supposed to have watchdog roles at academic and critical journals.
But it’s more than just bribery, it’s a “seduction.’’ An atmosphere has been created where any monetary economists or academics who want the respect of their peers have to be Fed friendly, and critical articles are rejected from the top journals.
Perhaps most telling is a 1993 quote from a letter by none other than the late Milton Friedman, whose monetary theories heavily influenced Alan Greenspan.
"I cannot disagree with you that having something like 500 economists is extremely unhealthy. As you say, it is not conducive to independent, objective research. You and I know there has been censorship of the material published. Equally important, the location of the economists in the Federal Reserve has had a significant influence on the kind of research they do, biasing that research toward noncontroversial technical papers on method as opposed to substantive papers on policy and results,"
(I was reminded of a time I saw Greenspan make the keynote address to the American Bankers Association annual convention in Orlando in the early 1990s and he didn’t talk about policy or theory or the future of the Fed. Wearing a brown suit, he addressed the assembly on the history of check clearing -- not at all what the audience had hoped.)
It’s that censored atmosphere that allowed the Fed to get it so wrong in recent years, even as cops and janitors were discussing “flipping’’ as a way to get rich. The trend was not seen as abnormal.
And that’s precisely why Ron Paul has found an audience with his efforts.
People on both sides of the political aisle have brought the Fed into the spotlight in finding blame for the worst U.S. economy since the Great Depression. To Republicans it was Bill Clinton and Barney Frank pushing for the working poor to get mortgages through lax standards at institutions such as Fannie Mae. To Democrats it was John McCain and others behind legislation such as the Gramm Leach Bliley Act that tore down banking firewalls and allowed Wall Street to capitalize on mortgage lending.
According to either theory, the Fed was asleep at the switch.
So of course Paul’s conclusion in his new book simply is to do away with the Fed. Among his arguments: The Fed creates money out of thin air, prevents us from having truly free markets and has systematically devalued our currency.
Paul’s Andrew Jackson-inspired manifesto might carry some appeal with disenfranchised Americans, especially those who are virulently opposed to the current administration. It’s worth noting that Amazon.com reports that many people who purchased Ron Paul’s book also picked up one by Glenn Beck.
But it’s not likely to bring down the Fed. While economists might like it to be less reactionary, more open to dissent, and ultimately less arrogant, nobody with any financial bona fides thinks we’d be better off without the Fed. The Panic of 1907, which led to the Fed’s founding, is evidence of that.
But Paul has made headway with his audit bill, which now has support from both parties and is likely to result in some kind of Fed scrutiny.
But be careful what you wish for. Democrats have been pushing for more fed accountability and transparency for a long time, too, notably when U.S. Rep. Henry B. Gonzalez, D-Tex., was the chairman of the House Financial Services Committee and an outspoken Fed critic.
The support for the bill comes mostly from Congressmen who don’t share Paul’s complete anti-fed views, and want the audit so the Fed can be cleaned up and gain more public trust as it continues to take on new authority.
“I think what they’ll do is they’ll give in to some of the transparency at the same time they’ll give them more power,” Paul recently told the Wall Street Journal. “We’re going to be bugging you a lot more. We’re going to be keeping eyes on you. That might be the way. Maybe inadvertently I’ll help them get more power at the Fed.”
