Another Nobel Prize Winning Economist Implies We Should End the Fed

Top Economists Slam the Fed

I noted last year that Nobel prize winning economist Joseph Stiglitz strongly dislikes the Fed:

Joseph Stiglitz – former head economist at the World Bank and a nobel-prize winner – said yesterday that the very structure of the Federal Reserve system is so fraught with conflicts that it is “corrupt” and undermines democracy.

Stiglitz said:

If we [i.e. the World Bank] had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure.

Stiglitz pointed out that – if another country had presented a plan to reform its financial system, and included a regulatory regime that copied the makeup of the Federal Reserve system – “it would have been a big signal that something is wrong.”

Stiglitz stressed that the Fed banks have clear conflicts of interest, since the banks are largely governed by a board of directors that includes officers of the very banks they’re supposed to be overseeing:

So, these are the guys who appointed the guy who bailed them out … Is that a conflict of interest?

They would say, ‘no conflict of interest, we were just doing our job. But you have to look at the conflicts of interest”…

The reason you talk about governance is because in a democracy you want people to have confidence … This is a structure that will undermine confidence in a democracy.

(Stiglitz supports the Wall Street protests).

Former Fed officials agree. For example, the former Vice President of Dallas Federal Reserve said that the failure of the government to provide more information about the bailout signals corruption. As ABC writes:

Gerald O’Driscoll, a former vice president at the Federal Reserve Bank of Dallas and a senior fellow at the Cato Institute, a libertarian think tank, said he worried that the failure of the government to provide more information about its rescue spending could signal corruption.

“Nontransparency in government programs is always associated with corruption in other countries, so I don’t see why it wouldn’t be here,” he said.

In fact, many high-level economists have blasted the Fed for bungling virtually everything it does.

Top Economists: End the Fed

Indeed, Milton Friedman, Murray Rothbard and many other economists have called for an end to the Fed.

Yesterday, the New York Sun reported that another Nobel economist may have implied that the Fed should be abolished:

Thomas Sargent, the New York University professor who was announced Monday as a winner of the Nobel in economics … cites Walter Bagehot, who “said that what he called a ‘natural’ competitive banking system without a ‘central’ bank would be better…. ‘nothing can be more surely established by a larger experience than that a Government which interferes with any trade injures that trade. The best thing undeniably that a Government can do with the Money Market is to let it take care of itself.’”

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  • Thomas Brown

    The Fed is antidemocratic and that is the whole point however,
    The idea of a competitive banking system may be far worse than the Fed itself.

    A monetary system may be the only ‘pure’ utility’ and needs to be owned and operated by the people.
    The fed can stay or go it simply needs put under the control of democracy. The plan would be to make the Fed part of treasury since it does perform important economic functions. But its money creation days are over. The Fed under the treasury can be the oversight or auditing arm of the treasury’s monetary functions. The fundamental problem that everyone seems to have with the monetary system miss that they are guessing what the best course of action in when in fact we now have proof and validation of a proper operating monetary system. The current function is systemically corrupt in that it extracts more money from circulation than it puts into circulation, which is a self evident fact. This is by default a recipe for long term repeated failure of the system which is prone to bubble creation and deflation until is exhausts the system of meaningful and naturally well circulated wealth. As defaults occur real wealth (assets) flow to the top and redeemed for monetary wealth. banks no account for 30% of the entire economic activity. This is the real problem – money making money while real products are not being made. This is stifling. Competitive banking (Which we are supposed to have now anyway) would only increase the dysfunction. The only proper way money, a system that is the basis of all modern economics is just the oil that lubricates and facilitates trade and commerce. By definition it must be democratic. The only proper democratic operation is to determine the expected rate of growth which translates into money necessary to facilitate that and then circulate the new money needed directly to citizens. Check this site for the systems dynamics paper and narrative about functional and dysfunctional money:

  • Chris Goodwin

    The constant (uncritical) adulation of “Noel Prize winning ” economists , as though their opinions were in some (any?) way better than, e.g. mine (or, perhaps, even yours ?) rathermisses the point: the Nobel Prize for economics is Sponsored by – wait for it – a Swedish BANK. The prize goes to “economists who do not question the nakedness of Bank Presidents” (Sorry, that should be “Bank Emporors” )

    Little boys who can recognise a willy when they see one are not invited to speak. If they do speak, they are silenced.

    (Piper: payments to: Tunes: Show Biz: Selection of Hits: Backs: Who Scratches What.)

    • David Coplin

      I did not really know who was making the Nobel evaluations but if the economics prize is
      determined as you say then you are obviously quite correct that it is a hopeless conflict
      of interest that reaches the level of flaming.