Federal Reserve Chairmen have long had a habit of dropping pithy little phrases into their speeches-most couched in hazy Fed speak and subject to a multitude of interpretations. But there are times when the money czars are actually delivering a message.
In 1974, Fed Chairman Arthur Burns traveled to Hawaii to warn the American Bankers Association about what he dubbed "competition in laxity", a poorly disguised complaint about banks switching charters in search of easy regulation. For financial insiders, Burns' message was clear-"the Federal Reserve should be the dominant regulator."
Now there is a new man on the Federal Reserve block-Ben Bernanke-and he has been using a word - transparency - freely as he moved into Alan Greenspan's chair. That's a word that has been on the "subversive" list at the Federal Reserve since 1913. Members of the Federal Reserve who rushed to their dictionaries for a definition of "transparency" must have felt an artic chill when the words "readily understandable, obvious, without guile" popped up.
So far Chairman Bernanke has limited specifics about his push for "greater transparency" to the idea of the Fed stating explicitly the numerical inflation rate it considers to be consistent with the goal of long-term price stability. Surely the new chairman doesn't plan to rest his transparency campaign on this limited point. After all, European central banks have long released such data.
Let's hope that Ben Bernanke really is talking about 'transparency" and "open government"-the kind of transparency that gets the message to all citizens, not just bond traders and the Wall Street insiders. What the Fed does or doesn't do affects the jobs and economic well being of all Americans-the very future of the nation. In short, let's "democratize Federal Reserve transparency."
The steps to open government would really be "baby steps" for the Federal Reserve. After all, most of the Federal government must live by "open government" laws and rules, and bureaucrats with a grumble or two - still manage to survive.
As starters, here is a seven point program that would bring the Federal Reserve up to speed for 21st century democracy:
- Regular open press conferences by the Chairman. Alan Greenspan and his predecessors never held press conferences.
- Adhere to the Budget Act which requires the submission of a formal annual budget subject to review by OMB and the Congress. (Currently the Federal Reserve prepares a limited in house budget and gives it self approval).
- Require congressional appropriations for all Federal Reserve activities. Currently the Federal Reserve finances whatever it pleases with public funds derived from the buying and selling of government bonds in the market as part of its control of the money supply. Surplus funds are returned to the U. S. Treasury annually.
- Allow the early release of Minutes of Federal Open Market Committee meetings with exceptions for national security issues.
- Hold open meetings on all issues not involving monetary policy.
- Require full audits by the Government Accountability Office (GAO). Currently the Fed refuses to allow GAO to audit anything involving monetary policy as defined by the Fed itself.
- Support legislation to prohibit commercial bank officials from serving on the boards of the 12 Federal Reserve District Banks.
The above would be a good start for a transparent and open government. But Mr. Bernanke should avoid the kind of doubletalk that former Chairman Alan Greenspan issued to maintain his ideological purity while satisfying his corporate friends and the Republican White House.
For example, Chairman Greenspan often railed against federal deficits, but he promoted ruinous, large Bush tax cuts for the wealthy that vastly ballooned the federal deficit. He warned about rising entitlements like Medicare and Social Security, but did not mention the vast, annual corporate entitlements - subsidies, handouts, giveaways and bailouts - that swarm out of Washington, D.C. daily. He continued his belief that federal regulation of business was backed by what he called in his earlier adult years as "armed force", but he walked away from much of his sworn duty to enforce the consumer protection laws under the Federal Reserve's jurisdiction.
Contrary to the uncritical applause that the media and the business community accorded Greenspan on his retirement, in these areas he is an easy act for Mr. Bernanke to follow.
Should you be so inclined, you can write to Chairman Bernanke and urge him to adopt these seven policies of openness at the Federal
Reserve: Board of Governors of the Federal Reserve, 20 & C St NW, Washington, D.C. 20551. Or, you can call the Federal Reserve switchboard at 202.452.3000, or visit www.federalreserve.gov.