Transcripts For CSPAN2 Discussion On The Role Of The Federal Reserve 20160520

Halfway through the first volume of the landmark history of the Federal Reserve. Not only having worked at the Federal Reserve, but having had lunch many, many times talking about his history, i have followed closely over time the massive transformations that has occurred at the fed, just since the financial crisis but over my lifetime. And before, and to think that the first 10 years of my life we were on the Gold Standard, you know, it suggests that things have changed a lot. And so when a friend at the wall street journal called up to ask if i would review a new book by a university of pennsylvania professor named peter contibrown called that are independent of the Federal Reserve, i jumped at the chance because of two things. One, i really do love that they. I think it had a big positive impact on my professional life at its a very important place in washington filled with people who want to do the right thing. They sometimes fail but i love the spirit of the food. The second thing to the second thing, i know its not mcgovern riding books about the fed ever since allan wrote is really three volumes. Part one and part two but it is a three volume thing. There are three types of economist and those who can count and those who cant. So hes got two parts to a three volume history of the Federal Reserve. One of the reasons is allens history is such an extraordinary a compliment in the journal, i liken his work to give in, and its true, but the second thing is that if you go outside of the sort of realm that talent existed in Federal Reserve history, then theres a heckuva lot of sort of weird conspiracy stuff going on. Teeter writes about that in his book a little bit. But if youre going to start to think critically about the fed and even say, hey, this isnt what they were designed to do, then you have a lot of people walking down that path with you that you kind of wish were not there with you. So i think almost because really think about is what the fed is doing constitutional, isnt the case that the founders 1913 when they wrote the Federal Reserve act thought this might be what they do and, as soon as you start on stuff like that, then you can start to look like a crackpot. So peterson defense of that is to write additionally incredible scholarly, thoughtful book about whats happened to the fed since 1913. Not from the perspective like allan, an economist, but from the perspective, an attorney and legal historian who thinks a lot about whether the thing youre doing, you have the Legal Authority to do and so when. Peter was kind enough to agree to come in to tell us what he has learned as he has spent the last, i guess its five or six years it looks like to me, working on his own Federal Reserve history it after he does that for about 25 minutes we are blessed to hear from two of my former colleagues who are the two that i couldnt, if i would have a dream team to discuss this, i guess if i could get Allan Greenspan to join the panel, then this what the drinking would look like. Alex pollock who spent many years who spent many years at the met Enterprise Institute has moved across town to r street, and, of course, allan meltzer. So allan will be the first discuss and, and alex will be the second they would each go for 10, 15 minutes and then well open up for general conversation around 6 30. I will be the moderator throughout and we will finish promptly at seven in which we will have a reception out there in the main reception area where peter will be selling and signing books. So with that, peter contibrown. Wonderful come such a pleasure to be with you day. Thank you for organizing this event. When i was last year to top of the federal over two years ago i joked that i would pleasure to invite a democrat here into the American Press institute. That wasnt particularly all in tokyo by the low standards of some of his introducing a talk about central banking, jokes can be pretty lame and still get a laugh. But that one was especially lame because the truth of course is that aei is a series place where people talk about seriou serious things, whatever ones ideological players. And decide in light of the huge composite pronounced huge results of the republican primary, may not be on when voting democratic in this election cycle. Now please know i had many other holidays trouble jokes prepared to introduce my talk but my dear friend and mentor and aei regular judg judge steve willias this year, advisory the good taste would count towards more safari. So thats what you keep your eye will have a lot more to say substantively about what a Trump Presidency would like for the fed and the independence. Its a special on because im sharing the day with my friend alex pollock and, of course, our host Kevin Hassett but also with allan meltzer. For a young historian of central banking like me theres no greater honor than to have my work engaged by professor meltzer who as kevin rightly called in his review of my book, called him that given a fetish was good for my thanks to you for being here hopefully my putting up the panel will build the critiques that are coming in the discussion after my talk. This is probably a false hope if anyone knows allan meltzer, he is not want to pull punches and we do have a few important in good faith disagreements about fed independence. Sir kevin asked since the title of todays presentation, has the fed go too far . Uncommunicative somewhat different point and raise some related preliminary questions. What is the fed today . And what is the best mechanism or mechanisms for ensuring that the fed is the central bank we want it to be . Reframe it is our following tradition that started with this man, walter badgett your if you get nothing else on todays presentation it will be how to pronounce this important mans name. Gets jealous of sorts. Pronouncing it incorrectly a lease among central banking titans like going to a sports bar in San Francisco and company while the whatever threepoint shooter Stephen Curry is. Its Walter Bagehot on youre welcome and thank you for the one person who watches nba basketball. Steph curry. Please google steph curry highlight. You really think before. So Walter Bagehot things because a book he wrote in the 1860s to early 1870s. Sometimes unjustly and mistakenly credited with introducing a novel theory of central banking and its Emergency Landing functions. The book impact is much more in favor of transparency and governance. Topics ill have more to say about in todays doctor fun in his introduction to this important volume he starts in talking about the subject of the bank of england that it inspires a lot of existential certainty among interlocutors. I love you can see that will do in his words, to house a bigger dispute, ma ask of any writer the one question, are you with us or against us . And they care for little else. I can give you might assurance that nothing has changed between 18732016 from chatty cabdrivers come academic colleagues from foreign central bankers, they meet at conferences, the free the most frequent question, far and away, is the same, are you for it or are you against it . My hope with todays talking with this book is to push past that. I recognize this is going to be a difficult task when you dont look at the titles of books that poured forth from the Printing Presses to get a sense of this phenomenon. Not all books are given the titles as state as a history of the Federal Reserve, and im glad to hear evanescent call out how to professor meltzer in writing three volumes and calling it too. Digital a three volume history of the fed. Oath of these books in fact have much more scintillating title. Creature from Jekyll Island him the secrets of the Federal Reserve and poorly drawn eagles. The stuff of conspiracy since learned better drawn eagles are the temple insiders around the country. This is actually a good book. Its title not within the and my favorite title, do they think they walk on water . Said chairman and the Federal Reserve. While much of this conspiracy mongering trucks and antisemitic stereotypes and spinning yarns that equal parts ignorance and bad writing, there is a sense that the fed holds the levers of total power over the economy and they could even with thursdays books. And so we get other books that are much better regarded. Central bankers are lords of finance. They are the alchemists turning mortgagebacked let into the back old. C. David wessel. Central bankers our god, gives the ending any case the only game in town. Its Little Wonder then, bring a picture that might hurt you a little to see and opine for a past that didnt become the future. Senator rand paul, its a Little Wonder then he would find at least initially somewhat receptive audience with a question that kicked off his campaign, anybody field like the feds out to get us . So theres this feeling. Or something powerful, something mysterious, something sinister about institutions that control our money. And these questions are as old as the republic itself but it was a battle between Thomas Jefferson and Alexander Hamilton, et al. Between Andrew Jackson and a lesserknown nicholas biddle, the battle between the grid, Williams Jennings bryan and the hard money republican william mckinley. This less what is less well remembered, perhaps the hamilton musical success will lead to a new wizard of oz remake that will focus on the story behind the story with William Jennings bryan. But regardless, this kind of idea, this contest, this feeling that institutions control our economy, our institutions, political and economic is a very old one. Its tempting to think, ask a question why does this conspiratorial idea exist then . Its not just the idea that money is controlled by these institutions that prompts the conspiracies. Maybe its because what the fed does is just outside of the usual conversations that most people have day to day. The kinds of things the fed does, words dont really roll off the tongue over the dinner table. Even for things that are as important as negative Interest Rates or capital adequacy of banks, quantitative easing, what are these things . Its too technical perhaps. Federal energy policy. The law of bureaucracy is a technical one. So there is nothing special about the fed in this respect. So to give you another cover of another book. This handsome volume, that some of you i hope more of you after the talk is over will have more in front of you. I think the reason why so much what the fed does and is inspires smart people to ask questions and when they dont have the answers to lean on conspiracy theories comes in this title of book, both from it is extraordinary power and exceptional independence. As powerful and quote, unquote independent as the epa or the fec or ferc is, and as powerful over those entities are over their slices economy and there is reason why the fed chair is called the second most powerful person in the United States after the president and after some side, the second most powerful person in the world after pope francis. It is not power alone but independence. I want to peel back some of the mystery behind that term, independence. I want to push back with walter badge get, uncertainty of interlocutors, where each of us knows where we stand on the question, are you for the fed or against it. Perhaps we put our guns back in holsters and ask harder questions what do we mean bit term independence. It is ubiquitous with discussion of fed. I want to talk more about what that is we have a standard account and use it to just if i it at the central bank. Politicians, usually talking about the president facing National Electorate, National Bankers, usually we mean the fed chair and the reason for the separation is so that the fed chair can use purely technocratic tools and skills of macroeconomics to keep inflation low. Now the president also has an interest sometimes, perhaps in keeping inflation low, at least generically but the president also has a bigger interest in reelection or if termed out maintaining good legacy. So what he or she has to choose between reelection legacy on the one hand and inflation on the other, inflation is going to go out the window. So central bank is created. It is given independence to prevent that result, to prevent the president and other politicians from goosing the economy artificially. The metaphor of fed independence come tumbling forth from there. If ulysses contract, reminding us of odysisu we usually refer to the homer traveler by latin name. In ulysses contract because ulysses decided to here the sirens without destroying himself, his men and his ship. Our politicians in this met at that far are lashed to the mast, using lashes of law. We hire central banker asker men and women with bees wax also made of law and macroeconomics. We stuff that legal and macroeconomic bees wax in their ears to guide our land into prosperity with low inflation. We the people by the way, are the sirens in this metaphor. Fast forward a few millenia we get different but also pervasive metaphor from long term fed chair william martin. And he says the fed is in the position of the chaperone who ordered the punchbowl removed when the party was really warming up. Interestingly all know not appropriately given the past new decade of fed policy, when you google punchbowl it is easier to find people spiking punch rather than taking the punchbowl away. That is the idea. Fed keeping us interested in the party and not getting too out of control. In my book i argue that this ulysses chaperone model of fed independence and it is five assumptions were one that law is doing the work, two, that the president is only relevant outside audience trying to influence the fed, three, that the fed is a single entity. Four that the work of central banking is purely technocratic and devoid of values, judgment or ideology and last that the fed exists primarily or even exclusively for price stability. This model is wrong. Now here i think is where professor medicals meltzers ears are picking up and debate will be joined. Sometimes the model is wrong because it is incomplete. Sometimes it is wrong because it is wrong. If the ulysses chaperone model is wrong what is right . That is what my book is about. First the fed is at they, not an it. Misappropriate political scientists kenneth schappells apt description of congress. The fed matters no question about it, but internal governance of the ted reveals so much going on in it to set parameters which the fed operates with participation from governors, who are themselves political appointees, other members of the federal open Market Committee, reserve Bank President s not selected by the president , including fed staff, especially economists and lawyers but also bank examiners. So these are the other parts. Second, the president matters, no question about it but so too does congress and bankers, Financial Markets, International Central bankers academic economists and many others besides focusly exclusively on president as outside influencer of fed policy missing much broader reality how the fed makes policy. Third, law matters. By law we usually mean the Federal Reserve act. Here is the important point. Law matters much less than we think. I will give a couple examples in a moment but the idea that the bottom line is the law creates independence is mostly false and indeed sometimes law does the very opposite what weve been saying it does as far as insulating the fed from political machinations. What else, law, custom, history, leadership and ideology matter enormous amount about the ways the fed interacts with these outside audiences. Fourth, the idea that fed independence can only be justified in terms of price stability. This is a curious assertion and it is curious because of the intellectual history of both Central Bank Independence and price stability. It rises in a moment in late 1970s extends just before the financial crisis in the mid 2000s. From that period, idea of price stability arose as Central Banks globally participated in successful experiment at combating inflation while simultaneously intellectual apparatus developed by macro economists and economic theorists and political scientists were developing exactly what Central Bank Independence would be. This ulysses chaperone model is fruit of those labors. Ironically, at same time at least in the United States the Federal Reserve act was amended to give the fed what we often call dual mandate, but a triple mandate, maximum inflation, lower longterm Interest Rates. So when we add that to the mix of its financial regulatory functions Bank Supervisory functions, it is supervision of the payment system, systemic regulation and its Emergency Lending Authority we see that the fed is a multifunction entity. Finally, and perhaps most provocatively to my central banking friends the idea that central Bank Something purely the work of technocrats is also false. This is not to say that the Technical Training is irrelevant. Very far from it. The point is that the most interesting and indeed the hardest questions a central banker will face are also those where the technical apparatus is exhausted. After technical and technocratic consensus has broken down theres a gap between the that breakdown and the point at which decisions are acquired. This raises the question, what fills the gap . Now you can say, central bankers are making decisions with which you disagree are making them because theyre corrupt or theyre stupid but i think the softer reality and the better reality is that theyre making these decisions not because they dont understand the question as well as you do but because that gap is being filled by a different world view, different values. To use the word central bankers hate, a different ideology. That word ideology the reason i say central bankers hate it, i gave this senior central banker manuscript, he commented, part i hated that central bankers do anything at all ideology, there is no ideology at all anything we do. Im saying that theyre human, all right . Im not saying that theyre partisan, that theyre trying to make the central bank do something to make donald trump or Hillary Clinton win an election. Instead what theyre doing is refracting a world of uncertainty and under certain conditions through their own lenses of experiences, ideas and influences to bridge the gap between what their phds or other training will tell them must be done and that in scenarios that have been historically defined and what they confront in a world of changing and uncertain conditions. So thats my book in a nutshell. More interesting than this because i fill it with a lot of historical examples and stories, that kind of thing. I mentioned that law is doing the, not doing the work people think its doing. Let me be a little more specific on two points. First, fill in, sorry, the rest of that chart. So first lets talk about what the governors, how the board of governors is structured to insulate them from president ial politics in the Federal Reserve act and how this actually works in practice and then second i want to raise a question recently raised by presumptive president ial nominee donald j. Trump. Whether the president can summarily fire the fed chair. First lets talk about the governors. The feds main body consists of the seven governors who serve one nonrenewable term of 14 years each. Puts them well outside norm of tenure of administrative officials. Makes them start looking like federal judges. There is Something Special about the number 14, that doesnt have anything to do with length of service per se and has more to do with president ial elections. The idea was to have no more than two vacancies on the board of governors before the National Electorate could reconvene to determine whether the president s vision of fed appointments should be added to the democratic stew and voted upon before the fed had been transformed by a single president. Indeed to keep that gap at twoyear intervals, the Federal Reserve act was written so that in the event of early resignation or death, a new governor could fill the stubbed term. That was the exception to nonrenewability, the unexpired term of a predecessor could be itself a part of a term. So thats the legal theory and what we would expect to see in this last column here is the number 0. 5. That would mean that a president gets half an appointment per year, two at the end of four. Take a look again and you will see that only one president , john f. Kennedy, had an appointment experience that matched the Federal Reserve acts architecture. For reasons we can discuss in the q a perhaps, governors simply dont fill their term. There are even incentives in the Federal Reserve act you can have cushier jobs through revolving door if you fill your term. They dont fill it anyway with all the early resignations that president s get largely to choose their board. The law is not doing the work people think it is doing. It is doing opposite in this case. There are on earths that the book discusses. That takes it to mr. Trump. My apologies that to republican in the room that this entertainer is your standardbearer, we will talk about him. Standardbearer he is he raised important questions about the fed only recently. He was quoted as saying would most likely remove janet yellen as fed chair and replace her. Although he said that he favors her policies. So im going to put that contradiction tot side and ask this question. Could President Trump legally fire summarily a fed chair . Here is the way wall street journal reports it. By law the president appoints the fed leader subject to senate confirmation. Wins in office, fed chiefs can only be removed for cause, they commit some sort of wrongdoing or found to be unfit for office. President s can not simply remove a chairman or chairwoman because of differences over policy or party affiliation. Besides the first sentence there is nothing that is true what the wall street journal reported on this question. There is, in fact nothing at all in the Federal Reserve act that speaks to the president s authority or not to remove the fed chair. This forcause protection referenced in the article refers to the board of governors, not to the fed chair. Every fed chair is filling two statutory roles. One, as a 14year termprotected fed positive, and the other as a fouryear term protected chair. So what about the removability of governor . That is kind of clear. It says for cause but for cause is not defined. Other agencies do have the same statutory language where cause is defined as negligence, malfeasance, that kind of thing but not the Federal Reserve act. What does for cause mean here . We would rely on courts to fill in the blank. I think this supposition is probably correct although there are some of judge williamss colleagues on d. C. Circuit written concurrent opinions. They think the forcause Protection System is unconstitutional and would throw that out. Suppose that is there to stay. Does that mean President Trump can fire janet yellen. I think the answer is yes legally. Nothing in the Federal Reserve act that says anything to the contrary. There is not Legal Protection here where we would think the Legal Protection would be most necessary. Keep in mind what would happen if donald trump played that out. Called, janet yellen, services are no longer required. Youre a democrat. Im a republican, youre fired . That would fire her from being the chair. She would return and stay on the board of governors. There is antiseed dent in history. Harry truman hated mariner eckels. He wanted him out. I will not fire you but offer you the vice chairmanship because i just want to be a jerk. He is the fed chair, you know what . Here is the vicechair. Eckels said no. Rather than doing what truman expected he would do to return to his millionaire banking empire in salt lake city, utah, he returned to the governorship and wreaked havoc on the fed or president truman on the fed for another three years. So, that would mean that janet yellen could stick around. It also means that even if there is no lit goings that janet yellen would pursue being fired, donald trump would then rely on the senate to confirm the replacement and there i think the senate would have a very appropriate position to say, we dont like that tradition, but a tradition it would be, not a Legal Protection. I think thats important. So, the, that is open question then, would President Trump take that risk . I dont think any president making careful political decisions would, why is not the why weve seen the thing with president truman and mariner eckels. Very few of my prognostications republican primary have come about. I will not say anything in particular what donald trump will or will not do, only highlight hough interestdation is behind what we conceive as fed independence as opposed to law. Let me conclude with saying, that addressing, kevins question headon. Has the fed gone too far . Much my discussion today hasnt been about history but about structure and governance, but the first third of my book is about history. Im writing a new and larger comprehensive history of the fed to be published by Harvard University press in about four years and i pondered this very question. How the fed today relates to the fed as it was founded and has changed over its century in great detail . And if were to change the question, last the fed gone far, the answer would be, a resounding yes. Let me give you one quick example that highlight in the book. There is this tragic comic scene in the feds early history where the members of the what was then called the Federal Reserve board, rather than the board of governors struggled with awkward question of social protocol. The newspapers dubbed the new board, the Supreme Court of finance which incidentally will be the nail of my new book on history of the fed. The board thought they were entitled to a pretty high place in the social scale. High wasnt exactly clear but the secretary of treasure and first exofficio chair of the fed and one who begrudgingly had to field these questions understood sardonically that these bankers and bureaucrats did not want to be i quote, pale and distance stars lost in the milky way of obscure official dom, must swim in the luminescent ether close to the sun. They gave at least unsatisfying answer to the new fed Board Members and state department said, the Board Members would sit in line with the other independent commissions in Chronological Order of their legislative creation. So that meant that the fed would follow the smithsonian institute, panamerican union, the interstate Commerce Commission and the Civil Service commission anytime there was official state dinner. Now when this didnt satisfy the status conscious members of the fed the question was taken to president wilson himself as secretary macadoo reported it the nature of the question of the feds social standing dawned on him, i can do nothing about it, president remarked. Im not social arbiter. When macadoo pressed him, the president retorted they might come after the Fire Department. Macadoo evidently pleased when we recounted exchange in the memoirs he never told the members of the board what the president said. It would have caused them needless pain. State departments view zare carried the day. I state the story can you imagine the idea president would say, come after the Fire Department for all i care. Absolute hely night. The fed as we saw in the book covers, only game in town, in fed we trust, the al chemist. Their boyar is extraordinary indeed. The question has the fed come far . The answer is resounding yes. Is it too far . As i write the feds history i am struck how little the framers vision held sway, not just today but in each generational intervention that remakes the fed in its own image. Institutional change that guides my story telling in this new book isnt framer focused vision at all but one i think is more realistic. That the fed is constantly being reinvented. Sometimes the reinvention comes through formal legislation, Federal Reserve act, doddfrank act more recently but much more often these changes happen through every day decisions of insiders and outsiders who seek to influence its policies and this is why elections matter. This is why appointments matter and this is why governance matters. We want to know more about the values that fill the gaps after the technical apparatus is exhausted, given how much power resides in those hands, we need to know more about the people whose hands they are. This is another place where professor melterrer meltzer d i part ways. Inherent stick at thisness of law where law can rear its head generations later where we least expect it. Why i would be opposed to writing a Monetary Policy rule into the Federal Reserve act. My view if we want a tailor rule, a rule that guides fed policy making explicitly tied to things like Interest Rate and output gap and target rates the like, we should put john taylor on the board of governors, rather than amending the Federal Reserve act. System we know it today is governed by exactly this kind of archaic structure that barely made sense in 1913. Makes almost no sense in 2016. It is better, mind you not to bury the bodies of temporary political disputes in the Federal Reserve act where they can cause future generations so many headaches. In my book when i think about proposals to the fed and ways we might change it im thinking at the little of governance and personnel as opposed to little of micromanagement this is also why i must conclude this president ial election from my perspective of Federal Reserve scholar, and among those who think seriously about Monetary Policy and financial policy, why this president ial election is so much more important and influential than those in the past. A romney fed and obama fed in 2012 after 2012 would have looked different, even including on these very questions of Monetary Policy rules, no question about it. But differences would be between interlocutors speak the same language with most of the same values and much of the same technical apparatus using to evaluate even competing proposals. The same simply can not be said about the present contests and in this sense im not sure of the appropriate historical antecedent. In this way, in this areas as in some other areas the Trump Campaign is taking us into monetary terra incognito. Thanks for having me. I look forward to this discussion. Thanks very much, fighter. [applause] peter. Before i hand it off to alan. I have one question on your presentation. Something that kind of puzzles me. It is that, it is also a story that think it would be great to share with the audience. That, the same structure that gives us, i guess if we think of Alan Greenspan as person i think very effectively independent in the way i think of independence but i know it was difficult concept. Arthur burns is the opposite. They existed in the same legal structure and that is one of those fascinating parts about the book, when you talk about, well weve tried to guarranty independence but look we got arthur burns, we got Alan Greenspan. So the first thing, could you talk a little bit about arthur burns and how he was an independent and how the legal structure didnt do anything about it and then the thing that sort of puzzles me is, then if i were a person trained in the law maybe what i would do at that moment think about, jeez, maybe we need to modernize the Federal Reserve act. Need to come up with ways we dont get an arthur burns. Where you despair of that. So maybe you have learned that laws in this space have no effect so you might as well give up trying to write them all together. Is it almost seems like thats what youre saying. Tell us a little bit about arthur burns and why is it we shouldnt try to think more about what we mean by independence and then try to change the Federal Reserve. You bet. Arthur burns is really fascinating figure in fed history and probably many in the room might remember his reign as fed chair. One of the most interesting stories i relate in the book i found, this is not hidden, Richard Nixon after the 1960 election, he wrote a book called, six crises. Anyone red the book . Very big book about five hands. About five hands. If there were six we would have one for each crisis. In the six crises he talks about the 1960 election. Arthur burns who had been chairman of economic advisors of eisenhower, called nixon and said you need to get the Eisenhower Administration to push the fed towards easier policies because otherwise the election will go to the democrats. Now, there are two things remarkable about this story. Number one it happened. We need the administration to really aggressive push the martin fed, something the Eisenhower Administration until then had been steadfast about not doing. And number two, nixon and apparently burns felt so comfortable about they wrote it down in a national bestseller. There was nothing to hide about this kind of collusion. But really set the stage for the burnsnixon relationship. Some of this is innuendo. We have John Ehrlichman writing a book which is, a lot of it is selfserving but arthur burns comes off as just the messenger boy for the Nixon Administration, holding off hard decisions in order to keep the Nixon Administration politically afloat but his diary itself has been published recently by the university of kansas press, called, the secret diaries of arthur burns. And in it you get all kinds of statements and journal entries where he is saying how much he loves Richard Nixon. How much the feds policies, what is good for the fed and the country is exactly identical what is good for the Nixon Administration politics. You get almost exactly that statement. So, yes, we have a burns appointment that is completely subservient to Richard Nixon. One of the most important monetary decisions happens in the 20th century, closing of gold window in 1971 and finally in 19739. We thinking that would happen without fed input is unthinkable. That was political decision, not a monetary decision. It was one arthur burns hated at time but he didnt have any influence. We see the fed as ajudant to the white house and treasury and political, advisory executive team. Some people view as constitutionally required. People want existential intelligence, the fed is often what theyre talking about about why do i think you cant legislate that away . And part of that is the frustrating tension between democratic legitimacy on the one hand and this idea of technocratic competence on the other. We want to keep this technicallypure central banker doing things with the bees wax in the ears so theyre not influenced by political or partisan electoral considerations and i think that is a mirage. I dont think it can happen. I think, this sounds down right churchhillian, it is a bad system to have elections influence central bankers at the level of personnel but identify a better one. Have the chairs of all the economic departments ivy league weigh in and decide who gets to be the fed chair . I dont think that is a good system. What we want to do is have democratic input where you will get people like arthur burns and frankly, mariner eckels is one of my heroes. The same legislation takes secretary off Federal Reserve board in 1935 coincides with the most subservient Federal Reserve system between 1935 and 1951. Legislation can really matter. The feds budgetary independence for example, is not subject to prepare bring races. That matters a appropriations. That matters a lot to be sure. Idea we micromanage that structure by writing every more technical and verbose statutes to that really try to solve the last problem that leads to insanitygenerating game of legal whacamole. I think it is better for us to think about the fact, to be clear there are changes i would make to the Federal Reserve structure and it is system. I think the better approach, okay, here is the system weve got. It is flawed. We should think very seriously both about politicians we elect who will influence selection of central bankers but vetting the central bankers to such that the attention they receive is commensurate with the power that they wield. We shouldnt see the republic threatened to chrome off the edge of the universe when Antonin Scalia dies but be so dismissive how many vacancies weve had on the Federal Reserve board during the entire obama administration. Getting that adjustment better i think would go a long way. Thanks. Allan meltzer. How do you turn down invitation from a friend who is an old friend who referred to you as the gibb bonn . History, Federal Reserve history . Cant do that. In any case im happy to return to where i wrote much of my history of the fed. The reason there are three volumes to settle that minor problem, because the second volume was so big that the university of Chicago Press decided to publish it in two parts. [laughter]. Another return return to aei for Federal Reserve policy i owe tremendous debt to chris demuth who was president of aei 14 years i commuted here from pittsburgh. I dont think there is another institution of its kind would have supported me for 14 years and hired extraordinarily Good Research assistants to do the legwork of going through the enormous amount of material that there is in the fed records. So i owe a great debt to my friend chris demuth and to aei for making that book possible. Im very pleased to discuss peters book on fed power around independence. Let me start with some parts of the book that like most. The fed is political as well as an economic institution. It cant be in washington without being a political institution. The book appropriately is work of political economy. It gives much attention especially to the role of the president. The answer to the question that peter just gave which said it is impossible to find ways in which the chairman of the fed is independent as the law might like to make him i think he is wrong about that i think Ronald Reagan, jerry ford, several president s took the position that interfering with the business of the fed was just not part of their responsibility. So Ronald Reagan never interfered with paul volcker. He agreed with what a lot of what volcker was doing. When the two would meet on rare occasions paul has told me that what president reagan would do is tell him jokes. [laughter] it is possible with some president s. Not possible with the current administration. I will come back to that. Surprisingly peter gives less attention to congress. It is surprising because the constitution gives congress the final responsibility for Monetary Policy and money. It is article 1, section 8 of the constitution that makes congress responsible for what goes on and the fed is the agent of congress. Congress approved the Federal Reserve and approved this very peculiar structure that peter would like to modify a great deal more than i would. Professor count contibrown. Ted truman, one of them on international division. Truman was sent to mexico and asia on what were essentially political missions. He proposes senior staff subject to a pointment by the president. What ted truman did was political. And it should have been done by the treasury undersecretary. It would never have happened to be done about it fed if paul volcker was, as he later became, the undersecretary of the treasury. So we need to know more about why a fed staffer was used. I oppose his, peters idea of having a president appoint Staff Members because it further harms what remains, what little remains of the feds independence. Also there is a good discussion of the rewriting of the rules governing the feds operations. These changes over time change the very central issue that congress discussed was not how should Monetary Policy be conducted . That was the Gold Standard. No one disagreed with the Gold Standard, at least no one openly disagreed with the the Gold Standard at the time. What they argued about was who was going to control the printing of money. The bankers thought it should be them. And the politicians thought they were the people most responsible. And they argued about that. That held up the legislation for a long time. Woodrow wilson came up with the compromise which was, that there would be a board called political from the very beginning in washington and there would be regional banks to satisfy the bankers. And the regional banks would be quasiindependent. They would have their own discount rates or so on. That was misunderstanding of economics what would happen once there was a single Monetary Authority for the country. The bankers lost the ability to have independent discount rates. But the wilson compromise was what initially got the fed act through congress. It immediately set off a fight, an argument, over how the fed was going to be run and because a strong, intellectual ability of benjamin strong, it was the banks that got control of the initial fed operations and they managed to do that from 1914 until 1933, 35. Anyway, it is good that peter goes through how these political changes came about and why they came about. From the earliest d. C. Was seen as political arm of the fed with reserve banks more representative of the economy and thats even more true today. The Regional Reserve banks have shed their influence of bankers. Their directors are broadly representative of their communities including Labor Union Members while the board of governors has often become much more political. And i agree with peter that the new york fed is something of an exception. It is often been captured by the bankers in new york and therefore they were not always acting in the interests of the public. Thats not inevitable. There were, as i said, president s strong who was correctly named. There was sproul and volcker. I worked in the kennedy treasury. Paul volcker came to be my boss. So i have known him since 1961 and i can assure you no one told paul volcker how to run the new york fed. There are three major issues on which peter and i disagree pretty fundamentally. First is the issue of independence. Second is safety and soundness of regulation. Third is the role of the u. S. President in the, what i regard as the increased politicization of the fed. Can we keep the fed out of politics . Should we . On this issue, professor contibrown and i are far apart. I made this separate issue but it is truly a part of independence. Let me start with independence. The book says that the reason is, to isolate Monetary Policy from politics. It doesnt go on to say that the main reason for the separation is to avoid the use of Monetary Policy to finance the governments deficits. That was what they had in mind. To prevent inflation. Thats what the argument was about. Who was better able able to prevent inflation by an independent Federal Reserve . Was it the congress, or agents of the congress in washington, or was it the bankers representing the public out in the prairies . That is a lesson which bankers, economists, 1913, most of public, congress, members of the wilson administration, including the president agreed. They accepted, all accepted the Gold Standard as a means to that end. The extent of the treatment on price stability was much greater than than now. The early fed had two strong provisions to do, to prevent inflation. Just exactly two. One was a monetary rule. The initial rule was the Gold Standard. That weakened in the 20s and disappeared in the 1930s. The current fed responds to noisy current data as if it were the gods truth. A rule would give markets and the public better information about future policy actions. The current procedure increases uncertainty greatly. It sets off a raft of discussions will they, wont they, are they going to, wont they. What the hell does all that have to do with the price of beans . Very little. What people would like to know, or should want to know, where are we going to be a year or two from now when the policy actions that they take today have their effect . You get no information from the fed about that. Will they increase the rate in june . Who knows. They dont know. So how can you know. Thats a very bad system, one which creates massive uncertainty that we could avoid. The second restriction in the 1913 act was total prohibition against direct financing of the treasury. In world war i the fed circumvented this prohibition by lending at below market Interest Rates to bankers who bought the Treasury Bonds to finance the war. Soon after, the fed learned to use open market purchases to circumvent the prohibition totally. It couldnt finance the treasury by lending directly because the law prevented that, but it could buy the treasurys bonds in the open market as soon as they were issued. The two prohibitions designed to protect the public from inflation or deflation were completely gone by the early 1930s. And no rule replaced the Gold Standard until the u. S. Agreed to the Bretton Woods rules after world war ii. I will come back to that. We can probably accept that financing the two world wars by inflating was an acceptable violation of the independence. Unfortunately the violations continued. Treasury secretary morgan thal would not tolerate the slightest increase in market Interest Rates. Peter referred to eccles as the most aggressive or independent Federal Reserve chairman. The opposite was true. The fed mostly accepted morgantheaus demands. His frequent threats to use the profit from the devaluing the dollar that he had gotten when the dollar was devalued, that he would use that to purchase debt in the market and engage in his own open market operations. He didnt like, i mean if it was 1 8 of a point increase in Interest Rates he thought the u. S. Would shake. He did things like invite all the members of the open Market Committee to his house to berate them. So on. And to tell them that i think at the time quarter point Interest Rate increase would be a disaster for the country. The fed responded to political pressure didnt prevent, permit wartime Interest Rates to rise until 1951, five years after the end of the war. It felt, if you read its discussions, it just felt it doesnt have the political clout to do anything about that. It later acquired that clout. A lot of it with senator douglas, senator from illinois and distinguished economist. The martin fed began in the 1950s with a policy of, what was called bills only and that was very controversial. The leftwing of the political spectrum wanted the fed to engage in all kinds of operations in the longterm government market. Martin, who wanted the at the time wanted the bond market to be able to stand on its own two feet after after all the years of futuring through the war and five years of postwar, didnt want to engage in any operation that involved purchases of longterm debt. And so he under the influence of his chief economist, winfield, came up with bills only, sometimes bill preferably. But by the 1960s martin had a change of heart. He, he was, he became convinced that the at the time of the Kennedy Administration by a political argument that said the Congress Passed the budget and the president signed the budget and therefore, he was obligated to help finance the budget. Now that is exact opposite of what the Federal Reserve act was designed to do, to keep him from financing the government budget deficit. But, that is what he decided he had to do and the result was he began to build the money, money growth and credit growth and, when he left office, they were, we were already in the beginnings of an inflation and arthur burns, arthur burns became the chairman. Arthur burns financed deficits with money and blamed labor unions for inflation. That is what you get when you get a political fed. You get untruths, call them lies, perhaps that happens. Burns said, well it is labor unions causing inflation. So he sprinkle ad little more money into the system. As a distinguished scholar and former head of the National Bureau for Economic Research he must have known better and surely if he didnt know better his friend, his very close friend Milton Friedman would not hesitate to tell him. So burns gave up Federal Reserve independence in peacetime for the benefit of president nixon and peter quoted some of the relationships between nixon and burns. Burns did things like attend cabinet meetings. He really thought of himself as part of nixons administration. And that continued until paul volcker, an independent cuss if there every was one, restored the independence and greenspan maintained it. The bernanke fed, after preventing possible financial disaster, financed government deficits at zero to low Interest Rates. As academic economist who knew both burns and bernanke, it hurts me to say what im saying. The two worst fed chairman to date have been the academic economists. They didnt lose independence. They gave it away willingly. Bernanke broke the postwar understanding that major nations would not engage in competitive currency devaluation. That was the essence of one part of the Bretton Woods agreement. There had been, there had been competitive currency devaluations in the 1930s. They had not worked any better than they have been working recently. But it was, it was the agreement that keynes began and u. S. Treasury continued to ban further, to get bleeding central bankers to ban further efforts at competitive currency devaluation. Bernanke called it qe but its proper name is currency devaluation. It has now been copied by japan, the ecb, even to using qe instead after more honest appellation. Do you think that central bankers would lie to you . Let me turn to safety and soundness. Professor county brown to the legislation pouring out of the fed. He approved the Consumer Protection bureau, Administrative Agency to use Federal Reserve revenues, taxpayer money to enforce regulations on which congress has no say. Our constitution has two sentences that are hard to misinterpret. One is a sentence that says, article i, Congress Makes all laws. Another part of the constitution says Congress Appropriates all monies. Now, you can be a lawyer and you can play with those words but it is damn difficult to get the sentence that says Congress Makes all laws to mean anything but Congress Makes all laws but where do these laws come from in our system . They come from the administrative agencies, not from congress. And where does this Administrative Agency, Consumer Finance Protection Bureau gets it money . It gets it from the Federal Reserve. What is that money . That is money 90 of which belongs, goes back to the treasury. So it is taxpayer money. So here we have an agency which makes its own rules and some really whoppers that i can mention for you in a minute, and pays for them by simply dipping its hand into the treasury. Our constitution forbids such actions. Thats what cfrb does. It is outrageous violation of the rule of law. My reading of the history of financial crises is, that regulators lock the door against the source of the last crisis. Neither regulators nor others can father tell how, can foretell how the next one will develop. They completely miss the causes of the Great Depression of 1929, Great Recession of 2008 and much in between. With that in mind i testified four times on the doddfrank bill. I urged less discretionary regulation with a rule for the largest banks that they be required to hold a minimum of 15 equity reserves. My proposal became the centerpiece of the bipartisan bill i helped to write. It was never voted on. The large new york banks prefer regulation and corrupt arrangements of current regulatory system. This permits them to negotiate circumvention of the rules that the fed writes and penalizes competitors who are smaller than they. Current costly regulation is one of the main reasons the number of small and mediumsized banks has declined greatly. There are now 5300 medium and small banks, sorry, in 2000, there were 8300. The small banks, mediumsized banks are down 30 . Now those banks are important. Important because they lend to local businesses that are starting up, to new companies that are starting up, and local regions where they dont have careful Balance Sheet and income statements. Local banks do a lot of their lending on the basis of, we knew your father and your grandfather and you come from a good family and therefore were willing to lend you money. Alan, we have to get couple minutes, get to your last point. We have a Big Conversation to continue. So, briefly, fed has now increased Equity Capital and that makes Bank Management much more concerned about risk and that is good. Their principle stockholders reinforce the attention to risk. The banks incentive to look for all kinds of risk, not the specific risk regulators guard against. With administrative regulation what prevents costly, excessive regulation of the kind that we see in the cfrb . Nothing . We just had the metlife case, courageous judge looked at the governments case find it full of opinion and devoid of facts. To support her opinion judge collier called the governments case, fatally flawed because of the absence of facts to support the government. Wouldnt it be better to have a rule . I think so. Is anyone in authority concerned that hundreds of mediumsized banks have closed . I believe that the father of the constitution, james madison, would be distressed at the constitutional violations of the regulators. For example, in cfrb. I will answer that in the question period if one would like. And Thomas Jefferson, george washington, Alexander Hamilton and john adams would join in the protest. This is naked authoritarian government, more at home in the former soviet union than in our country which purports to observe the rule of law. Finally, professor contibrown wants the u. S. President to have authority of the chairman to fire the fomc. He would remove voters on policy decisions and in other ways increase politicization of the fed in interests what he believes would be greater accountability. I dont think he tries to support his case. I believe the way to greater accountability is to require the fed to adopt and follow a rule of its own choosing. That is the proposal john taylor has made and which i have signed on to. Greenspan showed by following more or less following the taylor rule, greenspan showed he could get the best period for fed in its first 100 year history, with low inflation, steady growth, short recessions, quick recoveries. Thats what we want. Thats what we should have. And that would be a great improvement over what we have now. Do we have any idea about how the fed will eliminate the 2 1 2 trillion dollars worth of excess reserves on its Balance Sheet . Will that cause inflation . Recession, or both . No one knows because the fed is moving from daytoday. The fed needs reform. Discretionary judgment has given poor results, alternating periods of inflation and unemployment. Consider this benchmark. Under Bretton Woods the swiss franc was worth 20 u. S. Cents. Swiss per capita income was a fraction of u. S. Per capita income. Now the swiss franc is worth more than the dollar, five times what it was worth before. Has who are cautious, less inflationary, more rulelike policy of the situation National Bank and swiss Fiscal Authority hurt switzerland . Its per capita income is now larger than ours. The lesson i believe is, discretionary policy is costly and has cost our country. The best reform is a rulebased policy moved race. That would benefit our economy and be a step toward greater Exchange Rate stability. The dollar remains the worlds principle currency. Monetary rule here would encourage others to make a similar commitment, thereby stablizing Exchange Rates and reducing economic uncertainty. Thank you. Thank you very much, allan. [applause] alex, weve blown through our time constraints. If you could quickly i wont blow through my time constraints, mr. Chairman. In this book were discussing peter produced a highly informative, wideranging but also very specific and detailed work of history and analysis. Covering the remarkable institutional evolution, including intellectual evolution or the shifting of ideas for a complex structure known as the Federal Reserve in a very complex environment. Among the provocative effects of this book on me, i keep wondering new ideas and theories the fed will be trying out on us 10 years from now . Lets address as peter did and allan also, power. The fed comes along way as peter describes it as obscure back water government agency. That is hard to imagine now. Peter told the wonderful story how the fed wanted to sit in a more prominent place in state event and wilson said they could come in after the Fire Department. Little did wilson know that the fed would one day become the Global Financial Fire Department. It would be the Fire Department. Of course the fed has made, doubtless will continue make great mistakes. Not all mistakes but some mistakes. The power of the fed combined with propensity for mistakes which is natural dealing with uncertainty, makes it in my opinion the most dangerous Financial Institution in the world when it comes to the creation of systemic financial risk. Now put that together with the idea of independence. Peter rightly i think discusses a lot of factors which impinge on the independence of the fed. The fed has independence combined with it is power and riskiness of its judgments and its actions, bigger and institutional puzzle it represents and the more necessary as peters second book which is working on. In the famous conclusion of John Maynard Keynes general theory he tells us idea are dangerous for good or evil. I think this is espll te with the ideas that come to dominate the minds of central bankers. This is something that we really cant focus too much on. Which ideas are dominating the minds of dominant central bankers and how are those ideas moving . And of course the most important minds are those who lead the fed. Carter glass said nothing could be more ridiculous than to say the fed will create currently. Of course, today we are used to the idea that the fed is the leader of the worldwide fiat currency system. In discussing martin, peter has this line, the keeper of the currency is the one that has to enforce a commitment not to steal money through inflation. Now we have a fed formally committed to a perpetual inflation. These ideas change around the as peter points out, it is not the case that are objectively correct answers to the problems of Monetary Policy, and that they are formed with what we cannot unfairly call ideology. So peter observes in his book Center Banking practice is plagued by uncertainty, model failure, imperfect data, even central banker ideology. I just did know about the even. I would say and central banker ideology. Central bankers are adjudicating between conflicting claims he writes, and conflicting views about uncertainty, these failures, these ideologies. Well, this make us think of a great letter which was written in the Financial Times a year or two ago which said a mathematics theres one right answer. And literature all answers are right there at the economics no answer is right. [laughter] because the uncertainty is so high, peters word adjudicating, its arguable, might be replaced by the word guessing. I think theres a lot of guessing involved. Gassing by knowledgeable and intelligent people but guessing nonetheless. Because uncertainty aside, a natural human reaction is to cluster your ideas and come up with common ideas and reinforce each others repetition of these ideas. Peter discusses what he calls, and others have called cognitive capture but i think a more accurate description is cognitive hurting. Cognitive hurting is the natural human reaction of all of us to great uncertainty. We want to know what the people respect are doing and be doing the same things. Theres so much in this book, it would be fun to talk about what the chairman has already reminded me that have to move right along side will make only two more points. One briefly, peter mentioned lots of metaphors to integrate part of the book he discusses William Mcchesney martin, of course the longtime fed chairman and what peter calls the poetry of central banking, referring to martins love for metaphors, the most famous being the chaperone at the party. And how martin became the feds chief rhetorician. And, of course, this was appropriate for Federal Reserve chairman who studied not ecometrics away with two young, English Literature and latin classics. And it makes me think we may be made to change the line a little bit to say sooner or later it is metaphors that are good for good or evil. Theres a lot of truth in it. Last point is peter suggestion that aspects of the fed are arguably unconstitutional. I recommend the discussion about for your consideration. To me it comes down to what, and even more general point, and allan touched on this in his remarks. Of the fed and its relationship to the elected branches, to the executive which would like to get its deficit budget financed, into the legislative representatives of the people. Peter quote bernanke is telling janet yellen you have to remember that congress is our boss. But i wonder if the fed really believes that. Or do they want it to be congress is their boss . That is what the constitution says. I would just add that the more it is true, that the fed has independence from the elected branches, congress in particular, the more intriguingly alienable its structure is to the fundamental Constitutional Order your and in the opposite case the less independent it is, the more congenial it is to the fundamental order of checks and balances. Every generation wants to reform things and reforthe fed among them. And peter, thanks for writing such an interesting book to let us think about this. I think you are bound to be testifying at the hearings for the Federal Reserve reform act of 2020 something. Thank you. Thank you very much. [applause] and to be fair i think that kind might be in peters book the answer to the question i presented to you with. To the extent that we have accomplished an independent fed, then we decide something that is perhaps not something that was envisioned by the founders. So its almost like an impossibility to wade in and do anything that would be constitutional. So with that we can open it up for questions and answers from the floor. And if you could please wait for the microphone so that the tv audience could you as well. And we try to make a question in the form of a question rather than a statement because we want to get as many questions in as we can. I will start over here. Thank you very much. First and foremost for the books and for everything. When you look at today we talk of the idea of independence and we see a money printing happening. 2. 4 article standing standard, then unhedged. Weve never had growth. As the Federal Reserve Balance Sheet increases the fed remains is increased to treasure. Not only do we have more printing as of today the wall street journal reported that 19 billion reserve capital account was taken by treasury. When we look globally, the swiss, the swiss franc is basically, the dollar lost 80 of its value since we left gold. Now they left gold, printing money. It never stops. What are your thoughts on that . It just seems more and more money is being printed. More is going back and he becomes an essential part of the budget. Its almost half of interest expense right now. Peter writes about that in the book. Something thats interesting to think about is theres nothing in the Federal Reserve act that dick gates of those remittances are, in fact, the feds budgetary autonomy i wonder what professor meltzer mix of this constitutionally speaking. Is that without peril in rails integration of state known not only is the fed not subject to appropriations but it really grates the money with which it funds itself. Im not told by this book unconscious and about a policy policy. I think this is a place where the ability to maintain an insulated, i word i prefer the word. They are ins defensibility the original design was the original design, exactly, spend a chapter on this comp is charging a fee to the member banks for the services that that provides them including clearing of checks and i kind of think that it still doesnt it. It still charges those feeds and i can accounts for about 25 of the feds budget. 190 would be to shrink it down so the fed would be only a quarter of what it is today. Some intriguing proposal. I think its important to keep in mind is that battery change and elimination of the Gold Standard, elimination of the real bills doctrine, or a variant of the come and elimination of reserve bank economy has meant the fed has grown not by legislation but by tradition into the model we have today. Its remittances back to the treasury were a defensive preemptive move to keep that budgetary autonomy. Theres nothing in the law that says it must continue. In terms of what can happen in future, thats why these things matter so much, election, personnel and the like. Traditions can change the course. So they would be just as justified if they gave the money to be . Theres nothing in the Federal Reserve act that says Kevin Hassett cant return it. We will do a little ping pong. This should be a pretty easy one for you. Earlier you mentioned that donald trump might have a problem with certain policies. I suppose that janet yellen has enforced or ism created. So can you talk a little bit more about the contradiction between whether donald trump or donald Trump Presidency would accept janet yellen of would have a problem and dismiss her . Donald trump is an enigma to me. If you better insight into him from a policy perspective i would love to hear. Ive read a lot and are not close to understand exactly what is monitored politics are. He praises the yelling and the yellen said not in so many words but for low interest of our but the that fear i the thing i fear about a child administration is the donald trump has identified himself as someone who is linking shortterm economic results with his own clinical successes. Thats what the promise looking at your he seeks to consolidate power. Hes the boss, and so the idea that a central bank would pursue a policy that is antithetical to shortterm economic interests would seem to be anathema to a Trump Administration. And its not clear to me that from his public statements about even fiscal management that he sees the fed anything other than i kind of piggy bank or just an hour before we came on i was reading a headline that said theres no such thing as he is default because we can just print our way out of the problem. Thats called hyperinflation. So thats what makes me so uncomfortable about a Trump Administration. That looks to me like somebody would shoot the chaperone who tried to pull a punch bowl away before allowing that to occur. Both fouled and alex want to jump in . I have a for short. I dont think anybody knows what a Trump Administration is going to be like. I thought that donald trump figured out a very clever, unique way to win the primaries. That is, without spending much money. You said something extreme every day, and all the journalists rush to interview. So you had more tv time than anybody else could afford to buy, and that was a great winning strategy. And now one hopes that now that he is going to be the nominee, we will see what he actually is going to say about what hes going to say what is going to do. But i dont think you make any judgment on the basis of what he did because those were all statements designed to give himself on tv and be interviewed. Allan, i mean, who better than you, leading historian for the fed, is it ever the case some president said, darn it, i want to fire the fed chairman and then someone says no, no, no, you cant because of his legal technicality or Something Like that . Did that conversation never happened . Apparently kennedy wanted to fire chesney martin, but didnt have the, was a willing to carry through on it. Im sure that, im pretty sure that nixon asked, offered martin, who had one more year as chairman, he offered him a job in the treasury or something in order to get burns into the fed and martin told him no. So its not without precedent. Lbj commissioned a formal legal opinion from his attorneyy general to determine whether they could fire martin after he raised the discount rate contra johnsons wish it was exactly the ambiguity identified a set not worth it spent they said if he did it would be litigated. Exactly. When you describe that trump third of the festival of the fed i thought you describing lyndon johnson. Truman pretty much forced out the chairman of the day because he wanted to replace them with William Mcchesney martin who he thought was his men, and turned disappointed him. Countrymen thought he was a traitor but thats more to the point i think. But at that point, the term was almost up. Weve got time for a few more questions. We got somebody in the back. Ive got somebody over here and then i got a leg in front and a person in the back. You get the last question. Congratulations on a great book. A real service to us, but no one has mentioned the figure, lisa pretty good analogy to come. I think its Andrew Jackson. Andrew jackson and the war on the second recognize dates, the war on nicholas biddle. I think trump is i think present himself as the antielite candidate, the candidate of the hinterland, the great forgotten people out in the wilderness. And jackson played that role very a deadly and took on elite financial power centered in the central bank. Do you see a potential battle similar to that . I see echoes of jackson and Thomas Jefferson, and, frankly, abraham lincoln. Im choking as i say this come in donald trump come in the sense that hes seeking to say im a frontiersman, and at other people. Does nothing about his biography that authenticates that claim, unlike, well, not so much Thomas Jefferson but Andrew Jackson and abraham lincoln. The difference though and the reason i dont think we can see in trump a thoroughbred populace is theres no governing principle that motivates. Before a week ago and literally had no idea at all what his views on something as important as the central bank. And i could say the same thing about any of the other republican candidates. Thats the thing thats interesting. Is not about populism against the interests with donald trump, because theres so many different frequently contradictory views within what trump has articulated. So if question number two i think was over here if i am remembering my numbering scheme currently. We are running of the late so if you could make the question breathe i would appreciated. Very simple question. What role should Financial Stability played in setting Monetary Policy . Ive been talking to good questions. You are the author, peter. I believe the fed should not be in the Financial Stability business. I believe we have the fdic, and i think that should be sufficient so it should strengthen the fdic and take the fed out of. The reason for that is because it creates conflicts within. Multipurpose agencies generally dont do a good job. The best job gets done if you concentrate their minds on the task that theyre supposed to carry out. And for the fed thats clearly Monetary Policy. Quickpoint from alex. The original purpose of the fed in creating socalled elastic currency was Financial Stability. And, in fact, that the time of the foundation of the fed they were forecasts that th they woud to longer be any financial crises or cycles once we have the fed. Obviously a a very poor forecat spent by the best forecasts weve ever had it turns out. Theyre all so bad last night but on the point of regulation, i wrote about your book and the wall street journal image and it seemed to me reading a history that economists do think about independents are thinking about using lingerie policy to get the economy humming in an election year. They dont want that to happen. And that it looks to me like Federal Reserve chairman had kinder traded regulations and that greenspan had this exchange with a grandmother to write about where grammy was saying this housing plan is getting out of control but we had a congress that one a lot more housing wind and it looks like the fed did want to step up and give it to stop it because he thought if they do that they might lose the independence they care about. I concluded that your book says we are to separate regulation for Monetary Policy completely because the regulation is so political. You a great . I dont quite go that far. Obligations that institutional question come to you live here today. Theyre simply no question governance gets modeled over function to add to a Single Institution which is why im surprised to your professor meltzer is not in favor of separating out Consumer Financial protection. So we have question number three right here. Thank you. Thank you for all your presentations. Just try to think about fed, the purpose for improving economy, inflation, on whatever reason. Why dont they regulate . We want to economically, youve got to regulate it, Financial Institution. [inaudible] theres nowhere, doing some service or community and in the interest, so much gap between charging to the consumer or the student loan. That doesnt make sense. Its the destruction of fair market mechanism. And so against common sense, the Financial Institution, coming from the consumers are account holders. But they are earning revenue that did was distribute to the consumers. Actually they penalize consumers. Could you come to your question . My question, can we would ask the fed to really do their responsibility to do something to promote reduced inflation rather than doing opposite direction . This highlights a place where allan and i agree very strongly come and a place where we disagree. I dont think rulemaking is unconstitutional. And so i think it is appropriate for the fed to have Regulatory Authority over the nations that congress has laid at its the. Thats a place where we disagree. A place will be a great is that to the extent we can keep those regulations as dumb and stupid and simple as possible, and hear from the Financial Stability perspective, the example here is just jacking up the required levels of equity for very large banks is a clean, simple mechanism that have bipartisan enthusiasm missing from the coalition, however, is the banks themselves. So thats because we think its lets move for the last question in the back corner. Thank you very much go for interesting discussion big mike which is just about finance in general and its my understanding since the chart of the Federal Reserve that finance has changed and grown dramatically in terms of technology and even probably in the last 30 years. I wish his what if you could discuss that briefly but had reached some sort of take a finance . Has been expedition for the last little while and as would a slowdown so maybe the role of the federal also slow down . Such as about the interaction between the growth of finance. The financial theory on this which is a very mathematical literature is pretty clear on this and that to have an efficient Financial System and have the same number of assets as you possible future states of the world. So, therefore, the Financial Markets are always owing to be innovating in our lifetimes at least a newly innovating new products because we have very incomplete Financial Markets. So i just take the math point in at the end. Thank you all very much for coming and for watching on television if you been doing that. I think well look back on this day will be a very interesting and kind of historic moment where a great historian of the fed who will be known i think for ever and ever maybe doesnt hand the torch but maybe sits for the first of many times on the stage with the next great. Thank you very much for coming. Thank you. [applause] and weve got books for sale. [inaudible conversations] [inaudible conversations] [inaudible conversations] usually hearing on the farm Credit System and the countrys agricultural economy. And in the House Homeland Security committee looks and opening up their service to cuba. Followed by hearing of the house Small Business committee. So many women were writing to them in at the front of saying i dont know exactly what youre fighting for what you need to come home because we have about onefifth of the crop we rm