The Fed Plays a Major Role in Everything

Here's an absurd argument from Daniel Mitchell at Cato:

To put it mildly, the Federal Reserve has a dismal track record. It bears significant responsibility for almost every major economic upheaval of the past 100 years, including the Great Depression, the 1970s stagflation, and the recent financial crisis. Perhaps the most damning statistic is that the dollar has lost 95 percent of its value since the central bank was created.

It's difficult to know how to make sense of the claim that the combination of mild inflation and compound interest means currencies decline a lot in value over giant time scales. If you assume governments should put a very strong priority on the interests of people who want to save large sums of money in shoeboxes, I guess this is a damning statistic. But it seems to me that the relevant issue is that real income in the United States has increased enormously over the past 100 years and that we've done better in this regard than most countries.

As for the Fed's failures, Mitchell's going to easy on them. A central bank, by definition, bears significant responsibility for all macroeconomic crises. The job of a central bank is to avoid macroeconomic crisis. When one happens, they're screwing up. But by the same token, every time there's not a major macroeconomic crisis they're doing something right. Remember when the 1987 stock market crash wasn't followed by a giant recession? Remember when the economy recovered super-rapidly from the 1982 recession? Remember when wages and incomes grew steadily for 30 years between 1945 and 1975? Monetary policy is everywhere, through the good times and the bad. In part for that reason I don't think "ending" the Fed would achieve anything (though if the best political path to reforming it would be to give it a different name, I'm happy to believe that's an "end the Fed" agenda) since a country with a currency needs to have a monetary policy of some kind. But where I agree with Mitchell is that normally after a huge macroeconomic disaster we have a serious push for monetary reform. This time around, though, we've seen a counterproductive polarization between a minority faction of goldbug cranks and an establishment that merely wants to circle the wagons and pretend not to see the problem here.