Chairman Paul, Ranking Member Clay, and other members of the subcommittee, I thank you for the opportunity to testify at this hearing on improving the Federal Reserve System. I especially appreciate the efforts of this subcommittee to bring these crucial monetary policy issues to a prominent place in the public debate. As you requested, I will first explain why there is a need for improvement and then consider whether this need is addressed by six reform bills:
- H.R. 245 introduced by Rep. Mike Pence,
- H.R. 1094 introduced by Rep. Ron Paul,
- H.R. 1401 introduced by Rep. Marcy Kaptur,
- H.R. 2990 introduced by Rep. Dennis Kucinich and John Conyers,
- H.R. 3428 introduced by Rep. Barney Frank, and
- H.R. 4180 introduced by Rep. Kevin Brady and others.
A Need for Improvement
Nearly a century of experience under the Federal Reserve Act has provided plenty of evidence that more systematic rules-based monetary policies work and more unpredictable discretionary policies don’t. The Fed’s well-known mistake of cutting money growth in the Great Depression which led to very high unemployment is now part of a much larger body of evidence. From the mid-1960s through the 1970s, the Fed intervened with discretionary go-stop changes in money growth that led to frequent recessions, high unemployment, low economic growth, and high inflation. In contrast, through the 1980s and 1990s and until recently the Fed ran a more predictable, systematic policy with a clear price stability goal, which eventually led to lower unemployment, lower interest rates, longer expansions, and stronger economic growth.
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