In recent years the Federal Reserve has come under increased scrutiny for its actions before and during the financial crisis. The Fed has traditionally maintained reasonable political independence, but calls for greater political accountability suggest that this may not be permanent. Congressman Ron Paul is known for his desire to eliminate the Fed entirely, a wish that has been parroted by his Revolutionaries for some time. For now, he has gained support for attempts to give Congress greater oversight of Fed activities, including monetary policy. Though well-intentioned, Paul’s efforts could have counterproductive consequences for the very outcome he seeks: price stability.

The Texas congressman’s latest attempt is called the Federal Reserve Transparency Act of 2009. Among other things, the bill would increase Congressional oversight of the Fed’s open market operations. It is also part of what may be a larger trend toward reduced autonomy for the Fed, like the camel requesting one more inch of access to the tent. Paul’s supporters have trumpeted the potential passage of the bill as a victory for democracy. These laissez-faire enthusiasts seem to have missed the irony that the bill has also gained popularity among leftist economists like James Galbraith, anti-globalization thinkers like Naomi Klein, and union bosses like the presidents of the AFL-CIO, SEIU, and United Steelworkers.

The bill has found such diverse support because it could lead to a marked increase in Congressional influence over the economy. What Paul and his parroting adherents see as a step toward the demise of the Fed may be seen by others as an opportunity to increase access to crucial economic policymaking through lobbyists and campaign contributions. This may be more democratic than unelected technocrats making national decisions, but it carries serious risks. The traditional independence of the Fed has ensured reasonably low inflation for decades. Indeed, central bank independence is positively correlated with price stability. Conversely, instances of hyperinflation from Angola to Zimbabwe have typically been preceded by political control over monetary policy—such as Paul now seeks.

This outcome occurs for two reasons. First, politicians generally lack competence when it comes to economics—especially monetary policy. One survey noted that in 2008 just 14 percent of members of Congress had degrees in “economics-related fields” (reported by The Wall Street Journal, 1 October 2008; a more recent survey seems unavailable). This number included those with training in business and other areas which have little to do with the mechanics of monetary policy, so the portion of Congress with training relevant to the making of such policy is small. The notion that these people are more capable of administering the money supply than the seasoned economics PhDs at the Fed would be comical if it were not so frightening. This is not to say that formal training is necessary for economic literacy, but voters should be wary of giving such technical responsibilities to officials with mismatched skills.

Second, politicians face incentives which are contrary to those needed to produce good monetary policy. The Fed chief is motivated in large part by long-term credibility. After his tenure in Washington, Ben Bernanke will probably return to his career in academia. His credibility as an economist will forever depend on his decisions at the Fed. Members of Congress, however, face short-term election cycles which dominate every decision they make. Alan Greenspan has noted that he was pressured by politicians to inflate the money supply in preparation for elections (see The Age of Turbulence, 122). Further, the people in Congress are responsible for spiraling budget deficits, and they would face relentless temptation to monetize the national debt by reducing its real value through inflation (which is how hyperinflations often start). The Fed, however, is relatively immune to this temptation.

The economists at the Fed have made and will make mistakes. Fed policymakers are not democratically elected, and they are not seers. Given political facts, though, no better option exists for maintaining price stability. Paul has suggested that the choice is to either give monetary policy to markets or to the Fed, but this is not the choice Americans face. If the Fed is stripped of its autonomy, Congress will not delegate this authority to markets. The real choice is to either ask trained Fed economists to make monetary policy with reasonable autonomy or to give members of Congress increased control over the money supply—with their adverse incentives, lack of relevant competence, and susceptibility to narrow interests. Ron Paul’s attempt at transferring Fed authority to politicians, while perhaps purely motivated, can only result in reduced economic freedom and inch us towards higher inflation—not the kind of Revolution we need.

Ryan is a senior majoring in economics and political science.