Former Treasury Secretary Summers Calls For End Of Fed Independence
According to Market Watch, Summers argued that Central Bank independence came from "an understanding of the macroeconomic policy problem that is not relevant to current times." Ironically, he argued that Central Bank "insulation" was required in the 70s/80s when the "White House" and "Congress" could not be trusted to fight inflation.
So does this indicate that Summers' baseline assumption is that politicians today are more trustworthy than in the 70s/80s? Perhaps Summers is the one that is "insulated" from reality? Is it possible that he's completely missed the fact that one of our presidential candidates is currently under multiple investigations by the FBI for various allegations of corruption and fraud? Meanwhile, both presidential candidates are polling at among the lowest rates ever experienced for "trustworthiness" while the job approval rating of Congress has never been lower...but sure, we should grant them even more power to wreak havoc on the U.S. economy for political gain...why not?
Central bank independence “comes from an understanding of the macroeconomic policy problem that is not relevant to current times,” Summers said in a speech at the International Monetary Fund.
Central bank insulation was needed in the 1970s and 1980s to combat inflation, Summers said. That’s because the White House and Congress sometimes saw the short-run benefits of unexpected inflation, while the Fed kept its eyes on the long-run costs, he said.
But that was yesterday’s problem, Summers said. The economy now faces secular stagnation, or a chronic lack of demand.
To fight this, the Treasury should be issuing bonds with long maturities taking advantage of current ultra-low interest rates, Summers said. And the Fed should try not get in the way.
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