Michael Belongia on the Fed

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4.7 • 4.3K Ratings

🗓️ 11 January 2010

⏱️ 75 minutes

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Summary

Michael Belongia of the University of Mississippi and former economist at the St. Louis Federal Reserve talks with EconTalk host Russ Roberts about the inner workings, politics, and economics of the Federal Reserve. Belongia talks about the role that power and politics play in Federal Reserve decision-making and how various Fed chairs used their power to suppress dissent within the Fed that was critical of Fed policy. He argues that the Fed faces an unresolvable dilemma when asked to achieve the multiple goals of full employment and price stability using only the federal funds rate as a policy lever. The discussion concludes with Belongia's indictment of the monetary data that the Fed produces.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	other information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. Today is January 6, 2010, and my guest is Michael Bollongi, the
0:43.7	Othosmith Professor of Economics at the University of Mississippi. Mike, welcome to Econ Talk.
0:48.6	Nice to talk to you, Russ. Our topic today is the Federal Reserve. You recently wrote a provocative
0:54.9	essay that will put a link up to called Reforming the Fed. What would real change look like? I thought
1:00.1	we'd start about the conversation by having you talk about what the Fed does now because it's
1:06.8	range of responsibilities and the pies that it has fingers in. I think it's not very well understood
1:12.8	by the public. What is the Fed's range of activities right now? The Fed has responsibilities in
1:21.6	three broad areas. Most attention is given to its responsibilities for monetary policy. It's
1:29.9	receiving greater scrutiny now for its responsibilities for bank regulation and supervision. The least
1:37.6	attention is given to its third area of responsibility, and that's the provision of bank services, the
1:45.6	price services area, check clearing, and cash distribution. So, broadly speaking, those are the
1:56.4	areas where the Fed has responsibilities, and those are carried out in the 12 regional banks
2:01.3	with oversight through the Board of Governors in Washington. Well, let's start by talking about those
2:05.9	regional banks. When we read about the Fed deciding on whether to change or leave the federal funds
2:12.2	rate unchanged, what are the regional banks have to do with that? There is still a great deal of
2:19.4	input in policy meetings from the local offices, and all you need to do is turn on your television or
2:26.9	look at the financial press, and you see a variety of opinions coming from the regional bank
2:33.6	presidents on whether the Fed might stay the course with the setting of the fund trade or whether
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