Fed Chairman Ben Bernanke testified before the House Budget Committee this morning, talking a bit about the Fed's role in job creation.
"I think that monetary policy does have some scope to help recovery and help on the employment side," Bernanke told Tim Ryan, an Ohio Democrat.
Meanwhile, two buildings away, Ron Paul had convened his first hearing questioning the Fed, which he notoriously wants to eliminate as an institution. In particular, he called it to question whether the Fed can create any jobs.
With the GOP's takeover of the House, Paul became chairman of the Subcommittee on Domestic Monetary Policy & Technology in the Financial Services Committee, having served as its ranking Republican before. Today's hearing was the subcommittee's first in the 112th Congress; it bears the inquisitive title, "Can Monetary Policy Really Create Jobs?"
Paul has been decrying the evils of the Fed for some time, blaming the fiat money system, and the Fed's control of it, for cycles of boom and bust since 1971, when the dollar came untethered from gold.
In Paul's 2009 book "End the Fed," he suggested that "the swollen ego of the Fed chairman only encourages mischief"--not directing that comment at Bernanke in particular.
Paul also made an economic case for the Fed to go away. (He made a lot of cases, but the economic case was one.) He didn't say much about jobs, but he did seem to answer the question he's posed at today's hearing. Yes, Paul seemed to think: The Fed can create jobs. It has done so by artificially inflating the economy into boom cycles that have been ultimately deleterious to the nation's fiscal health. The Fed is a bad thing, Paul said, but part of that badness seems to involve economic windfall that later hurts everyone, as Paul sees it doing now.
Here's what Paul said about jobs (directly and indirectly) in his chapter, "The Economic Case":
By manipulating the supply of money and setting interest rates, the Fed has practiced backdoor economic planning. The Fed essentially keeps interest rates lower than they otherwise would be. In a free market, low rates would indicate adequate savings and signal the businessperson that it's an opportune time to invest in capital projects. But the system the Fed operates discourages savings, and the credit created out of thin air serves as the signal for investors to spend, invest, and borrow excessively, compared to a system where interest rates are set by the market.
This causes a major problem. A boom results, and overinvestment and excesses are built into the system, creating a bubble. A recession or depression doesn't come for some extraneous reason; it is a predictable result of the excessive credit and artificially low interest rates orchestrated by the Federal Reserve. ...
Although the central bank can get away with mismanagement of the economy for long periods of time, its policies are always destructive. Unchecked, the policies of a central bank lead to financial chaos, an example of which we are now experiencing. ...
Everybody recognizes difficult economic times when the predictable recession or depression hits. The problem, though, is that with the brainwashing in economics most Americans have received, the people are unaware of the cause of the problem and the policies needed to restore the economy. Too often the people, the politicians, and the central bankers demand more of the same--more spending, more deficits, more regulations, and above all else, more inflating of the currency--none of which will be helpful. Instead, they compound the problems.
People worry what would happen in a world without the Federal Reserve. My answer is that you would enjoy all the privileges of modern economic life without the downside of business cycles, bubbles, inflation, unsustainable trade imbalances, and the explosive growth of government that the Fed has fostered. You would also disempower the secretive cartel of powerful money managers who exercise disproportionate influence over the conduct of public policy.