“End the Fed” is much too radical for the American intellectual class, but everyone wants to jump aboard the anti-Fed bandwagon these days. So now we’re hearing, here and there, the “if only the Fed would return to its original mission” thing.
That’s the line George Will takes in his most recent column. The Fed’s current policies may be dreadful but we can’t close it down, Will hastens to caution us. “Before the Fed was created 99 years ago, the U.S. economy was in recession 48 percent of the time; since 1913, it has been in recession only about 20 percent of the time. The Fed has done much good.”
Will’s statistic about the 19th century is preposterous. It is based on long-discredited statistics that economists today no longer believe. The Fed chapter of my 2011 book Rollback discusses this point and brings together the avalanche of evidence against the familiar claim that the economy was notoriously fragile before the Fed was created and robust afterward. I said a little bit about this in a recent article I wrote (see myth #9) with Bob Murphy, and also in “Life With the Fed: Sunshine and Lollipops?”