United States Federal Reserve Bank building on Constitution Avenue in Washington, D.C. (Rob Crandall / Shutterstock.com).Knowledge, Risk, and the Surprised Banker: A Conversation with Alex Pollock
Who Is This “We” that Should Manage the Economy?
Democratic Accountability and the Economy
Then Professor, now Judge Stephanos Bibas giving a lecture at The King's College in New York City, September 29, 2016 (Image: The King's College).
Ray Fair, a fine Yale economist, has the best economic model for predicting the outcome of presidential and congressional elections. The model has the virtue of simplicity, weighting incumbency, length of time a party holds the Presidency, and news about the economy on growth and employment relatively shortly before election. It has not been perfect in predicting each party’s share of the two party vote, but it has been good–good enough to be taken seriously outside the academy. The New York Times in fact devoted a whole interview to him, sadly marred by the seeming inability of the interviewer to understand why, Fair, despite being a Democrat, used his model to predict a Republican victory!
But the relative success of his model makes one doubt how strong is democratic accountability for the economic performance of government. Few, if any economists, would say that the news about growth and unemployment shortly before an election is a good proxy for that party’s economic stewardship. Business cycles are not in the control of the government. And perhaps more importantly, the most important policies a government undertakes likely take longer than a few years to bear fruit. Thus, the tax cutting policies of the Reagan era may be largely responsible for the prosperity of the Clinton years as businesses and people invested more.
Government Failure Makes Bitcoin Succeed
Then Professor, now Judge Stephanos Bibas giving a lecture at The King's College in New York City, September 29, 2016 (Image: The King's College).
Bitcoin, the premier cybercurrency, is at an all-time high in price and an all-time low in volatility. In a new article, Bitcoin: Order without Law in the Digital Age, Kyle Roche and I compare Bitcoin to fiat money and show why and how it may succeed in the long run in becoming a currency relied on by millions. In this post, we focus on the flaws in fiat currency that may enable Bitcoin’s success. In the next we will describe how Bitcoin is succeeding.
In 1924, Georg Friedrich Knapp, the father of monetary theory, wrote that “[t]he soul of currency is not in the material of the pieces, but in the legal ordinances which regulate their use.” The state must instill confidence through law that its currency will retain value. And it is the uneasy relation between a state and its currency that gives Bitcoin the opportunity to grow. Citizens in some nations rightly distrust their currencies, precisely because they have little confidence in the legal ordinances and institutions, like central banks, that regulate their use. For instance, in the recent past nations, like Argentina and China, have undermined the value of their currencies and yet also tried to prevent citizens from using other more stable and reliable currencies to maintain the value of their assets.
Bitcoin provides many people in monetarily oppressive regimes with a better alternative.
Fear Not, the Federal Reserve’s Relevance Is Declining by the Day
“The sole use of money is to circulate consumable goods.” – Adam Smith
In a recent op-ed for the Wall Street Journal, Morgan Stanley economist Ruchir Sharma observed that while the world is seemingly “turning inward,” this comes “in a period when countries are more beholden than ever to one institution, the U.S. Federal Reserve.” Interesting about Sharma’s piece is that if anything, it revealed the Fed’s growing irrelevance.
America’s Bunk: The Uninspiring Origins of the Federal Reserve
In the opening paragraph of his multi-volume, quasi-official History of the Federal Reserve (2003), monetary policy scholar extraordinaire Allan H. Meltzer wrote: “The founders did not intend to create either a central bank or a powerful institution; had they been able to foresee the future accurately, they might not have acted.” They might not have acted—given a little time, those who started the Fed back in 1913 could well have looked upon the result and found it undesirable.
