An Economic Litmus Test

Just as a poetic discussion of the weather is not meteorology, so an issuance of moral pronouncements or political creeds about the economy is not economics.
            Thomas Sowell

Since 2006, Ben Bernanke has been the Federal Reserve Chairman.  The South Carolinian holds the highest position in the U.S. government’s economic structure.  Much more so than his predecessor, Alan Greenspan, Mr. Bernanke has had to deal with an economy for which few people want to be responsible.  Both Republicans and Democrats have attacked him and he has served both a Republican and Democratic president.  As the position was designed to be, Mr. Bernanke has attempted to carry out his duties without delving into the politics.  Yet, in a recent press conference, President Barack Obama said that he hoped the next Fed chairman would do their job considering the pains and suffering of the individual.  That kind of naïve thinking, not to mention a fundamental misunderstanding of the job, could land the country into worse economic troubles.   

In 1914, President Woodrow Wilson signed the Federal Reserve System into law to avoid the banking crisis that had cyclically hurt the country’s economy since the beginning.  By instituting a government oversight, in the progressive spirit that infected both parties of the day, it was hoped that the banking system would be stronger and less prone to bankruptcy.  Today, the Fed is responsible for the country’s monetary system.  In short, the Fed, through the Board of Governors and carried out by the twelve Federal Reserve banks, regulates the amount of money in circulation.  The Fed chairman is answerable to Congress but is responsible for carrying out his duties regardless of political pressure.  The goal of the Fed is to seek solutions that help the country as a whole.  

All this to say, President Obama’s litmus test is antithetical to the job of the Federal Reserve Chairman.  Mr. Obama’s declaration is not only symbolic of his administration’s difficulties but also part and parcel of the problems that lay within the liberal political framework.  Liberals often get themselves worked up over the plight of an individual.  They will refer to them ad nauseum in speeches and while politicking for a particular piece of legislation.  However, the president’s job (like that of Congress and the Federal Reserve Board) are responsible for what is good for the country as a whole.   

Addressing problems that affect individuals instead of a portion of the population can bring unintended consequences – such as meandering mandates and conflicting objectives (not to mention staggering funds required) as seen in the president’s health care law.  It is not that conservatives disregard the plight of the individual – no matter the demagoguery the Democrats often employ.  Conservative thought suggests that policy that engenders national growth and prosperity will uplift the country as a whole.  The appeal of the individual is an example of pathos – a form of rhetoric that is usually employed where logos fails.   

Meanwhile, the politicians in Washington, D.C. and the Federal Reserve chairman must make their decisions for the good of the state.  They must keep the broader picture in mind.  The Fed chairman is working on the principles of macroeconomics and that, as the name suggests, require him (or her) to work for what is best for everyone.  The plight of an individual might score political points and stoke the fires of populism however, it serves little purpose in setting a national economic course and that is the Federal Reserve chairman’s job.