Amar Bhidé is a professor at the Fletcher School at Tufts University, and the author of four books, including A Call for Judgment: Sensible Finance for a Dynamic Economy (2010) and The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (2008). We spoke with Bhidé about his op-ed in the New York Times, in which he advocated a reduced roll for the Fed.
Q) In your op-ed for the New York Times, you call for a Fed chair that will return the organization “to dullness.” Looking at the two most likely candidates (Lawrence Summers and Janet Yellen), do you see either one moving the organization back into obscurity?
A) You know, there is only so much you can say in an op-ed. I basically said in an original draft that it’s up to the President and Congress to redefine the job such that it’s more boring. I really don’t think that a Fed Chair can actually do this, since he or she is legally bound to pursue mandates and appear before congress. It would help if there was a Fed chair who could go along with a reduced mandate, but such a thing [coming from congress right now] is a bit of a pipe dream.
What is less of a pipe dream is the Fed being made more accountable. We have a debt ceiling, which congress has to legislate. What if we had a similar ceiling on the size of the Fed’s balance sheet? You could set whatever kind of limits needed, but if the Fed wanted to do anything extraordinary, like they did in the last three years, it would take a vote of congress. There needs to be, at the minimum, more checks and balances than we have now. We need to scale back what we expect the Fed to achieve.
If you want to start a war, you need approval from congress. Why not do the same with the Fed’s balance sheet?
Q) You say that economics is a “professions of faith as much as science.” Do you think the average person understands that distinction, or is it something people don’t quite grasp?
A) I think people’s eyes glaze over [when it comes to economics], but the most compelling evidence that this is a guessing game is this: you get people from the most distinguished universities, people with the best publishing track records, and you get them saying the exact opposite things, ‘The Fed is too tight, the Fed is too loose.’ Now, you could attribute this to ideology, but given that these differences exist, that’s as powerful evidence as you can find.
Then the question becomes ‘if no one really knows what they know, what principles do our elected officials follow, when trying to handle these disputes that even the best and the brightest can’t solve?’
Q) Since there is so much guesswork involved in economics, do you think the U.S. government is hesitant to regulate the Fed? Is it a matter of understanding or not understanding?
A) Military strategy is at least as complicated as monetary policy, and yet we still say that the President is Commander in Chief, and he can change military leadership and debate military issues. [Our government] has way more experience with both its judiciary and military sections. Relatively speaking, the Fed is a new institution, only 100 years old, and only the chair really has a say in what it does right now. I think that’s a dangerous precedent.