The FOMC Board: Secrecy and Obscurantism Do Not Make for Good Democracy

A guest post by Benjamin Cole

No serious democrat contends that obscurantism, opacity and secrecy are handmaidens of good government. Indeed, closed doors are properly and universally regarded as cardinal sins, while transparency and accountability as gateways to working democracies.

Yet the public is barred from meetings of the most powerful economic policymaking body in the United States—the Federal Open Market Committee, the decision-making body of the Federal Reserve Board, wherein monetary policy is decided.

Not only that, the Federal Reserve deigns to make only edited minutes of FOMC meetings—but not transcripts—available to the public, and then only after three weeks have elapsed from the day of the meetings, which occur every six weeks.

It should be acknowledged that the Fed publicly announces FOMC policy decisions at 2:15 p.m. on the day of meetings. The statement explains actions, the vote tally, and the preferred action of those who dissented.

Still, the actual FOMC transcripts—and the insights, nuances and accountability such transcripts would help provide—are inexplicably put under lock-and-key for five years.

Despite wonderful advances in media technologies in the last 40 years, the FOMC meetings are not broadcast on CSPAN or by webcast, so that both democratic transparency and simultaneous disclosure of information to all markets can be assured.

Whatever else FOMC obscurantism is, it is irrefutably bad government, and baldly so.

Secrecy Married to Undemocratic Board Selection

Not only does the Fed prefer secrecy, the presence of totally unelected regional Fed presidents on the voting, policy-making FOMC board stands as a towering monument to obscure and undemocratic government.

For example, who put Richard Fisher, Dallas Fed President, on the FOMC board, where he is now one of 12 votes—and where in bloc with four other regional bank presidents (also unelected or appointed by public officials) he can swing monetary policy?

Well, no voter or public official put Richard Fisher on the FOMC board. Fisher, also known as “Inspector Clouseau” for his uncanny pitch-perfect ability to say precisely the wrong thing at the wrong place, was appointed to be President of the Dallas Fed by that bank’s board of directors, none of whom was elected by the public either.

Inspector Fisher told the Council of Foreign Relations in New York City in 2008 that “though the economy still faces a period of slowdown…the U.S. will skirt recession.”

He followed that up in Japan in 2009 when he said, “I consider inflation an evil spirit that rots the core of economic prosperity and must never, ever be countenanced.”

If the public, or elected official, had a choice in nominating an individual to make macroeconomic policy, would they elect Richard Fisher?

Moreover, due to historical anachronisms, regions such as the state of Missouri—with Fed branches in Kansas City and St Louis—have two rotating seats on the FOMC board, while San Francisco—which represents most of the American West, California and one out of five citizens—has but one seat.

Solution

Of course, FOMC meetings should be televised—it is a minimal standard of good government, beneath debate.

The larger question of how to fix a sclerotic, unrepresentative and undemocratic FOMC board is more challenging. Government is not free enterprise, and does not evolve to meet changes.

In the past, it has been suggested that the Fed be placed into the Department of Treasury (this was a proposal of the Reagan Administration, btw).

In this scenario, the President of United States would undertake and accept responsibility for monetary policy, and the public could cast votes accordingly.

This is probably still a good idea. As it stands, the voting public may confuse the failure of Fed policy with a standing President or political party.

Indeed, it could be argued that the American GOP got booted out of office in 2008, as the Fed torpedoed the economy in its misguided perma-war on inflation.

Though President Bush did appoint Fed Chief Bernanke in 2006 (approved by the Senate), the seven-member Board of Governors (who sit on the FOMC and vote also) are appointed for 14 year terms and cannot be removed from office—so President Bush inherited a Fed policymaking board too. And of course, a nearly impermeable Fed culture.

Thus, the chain of command from President to Fed Chair and especially the FOMC is purposely weak—not for nothing the Fed is called an ”independent” agency. We have the confounding reality of a U.S. President making macroeconomic policy, but not in control of the most important macroeconomic policy making body.

In the end, simplicity, clarity and transparency are always best for government. The Federal Reserve fails the smell test. There is no way for intelligent but not well-versed voters to even understand the current Fed, or popularly vote for remedies.

Keep It Simple Stupid—words for government to live by.

Solution: A single Fed or Treasury Secretary who reports to the U.S. President. If the Fed succeeds or fails, the voters can render a verdict.

3 thoughts on “The FOMC Board: Secrecy and Obscurantism Do Not Make for Good Democracy

  1. The Federal Reserve Act has a still valid provision that the President can remove members of the BoG, I wrote a post regarding this about a year ago and will provide a link if you’re interested. I agree with your point though that the regional presidents on the FOMC is a big problem and should be stripped out. Bankers on the committee pose a conflict of interest, hence a bias toward an ever tightening policy, and a serious hazard to the general welfare as a result.

    • By the way, I think I need to take a closer look at the comment made by, I think Bullard, in the transcripts where he talks about wanting to make an example out of someone – I think, but am not certain that he specified “investment bank.” Ever wonder why it wasn’t maybe Bank of America instead?

  2. Pingback: The FOMC Board: Secrecy and Obscurantism Do Not Make for Good Democracy | The Corner

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