The Completely Absurd Concept of So-Called “Fed Independence”

There is no such thing as central bank independence. Not now, not ever.

To believe otherwise is to believe that what was created by Congress, and whose top officials are appointed by presidents and voted in by Congress, can somehow be independent. On his face such a view is absurd. And impossible.

However, it is worth addressing what is absurd and impossible: the idea of ​​an independent central bank. What if Fed officials were incredibly narrowly focused automatons, entirely determined to conduct so-called “monetary policy” without regard to politics? If so, it wouldn’t make a difference.

While John Maynard Keynes was very wrong, he wisely observed that “practical men, who think themselves entirely free from any intellectual influence, are usually the slaves of some late economist.” Yes, exactly.

Texas Tech professor Alexander Salter regularly advocates for an “independent” Fed free of political influence, but Salter is hardly free himself. He agrees that the means of exchange producers use to facilitate trade with other producers should be centrally designed by economists in a non-inflationary way. Stop and think about it. Salter’s conceit is astounding.

While the 20^u century revealed in a murderous way how uneven government was in planning production, Salter would like to attribute to a creation of government the power to control the quantity and cost of the medium of exchange that logically reflects production. But a government that can in no way plan for anything but scarcity logically cannot plan for the amount of money associated with abundance.

Beyond the absurdity of the belief that the so-called “money supply” can be centrally planned, beyond the overwhelming absurdity that the central planning of the latter will result in a “fixed price level” (whatever that is) even though prices are the result of infinite decisions made every millisecond by billions of people around the world, it must be said that central banks and the economic views of central banks. Which means they are not independent even if they are independent.

Instead, and unless they are more or less constrained by the politicians they court before taking their jobs, they will bring their own views on how government should intervene in the natural workings of the market. Which means they will not bring independence to the central bank, but a deep political view that in matters of money, interest rates and banking regulation, the markets themselves are inadequate so that the government must step in to modify the allegedly wrong markets.

It’s just a comment that while Salter, Nicholas Cachanosky, Jai Kedia and countless other scholars desire an “independent” central bank, they expose the folly and false nature of their expressed desires when they clamor for “Fed independence.” The latter brings new meaning to the oxymoron.

Worse, it implies that there is good and bad government intervention. No, the close replacement of “expert” knowledge with that of information-pregnant markets is always and everywhere unfortunate.

All of this begs academia to stop pretending that “Fed independence” is impossible. They don’t want that. Instead, they want a central bank that is “independent” only to the extent that it vainly tries to centrally design so-called “monetary policy” in ways that reflect their own views. In addition to their own views being political, they involve government intervention in the natural functioning of the market, which means they are wrong.

They are also redundant. This is because money in circulation is just as much a natural phenomenon of the market as the production that motivates it.

Which means the only Fed “independence” is a Fed that does nothing that economists could never support. After all, they need jobs too.