Sept. 16, 2009
BOOK REVIEW: Ron Paul Wants to 'End the Fed': Bring Back Sound Monetary Policies Backed by Something More Substantial Than Printing Presses
Reviewed By David M. Kinchen Book Critic
Don't Steal, the Government Hates Competition. -- Plaque on the desk of Rep. Ron Paul
Judging by the plaque on the desk of Ron Paul, R-TX, the so-called (by his detractors) "Doctor No" of the Congress, one would think he hates government. But, as he shows in his latest book, "End the Fed" (Grand Central Publishing, 224 pages, $21.99) he doesn't hate government, he just wants it to do what the Constitution says it should do -- nothing more and nothing less.
One institution that he thinks is not only unconstitutional, but philosophically, economically and morally wrong is the Federal Reserve System, established in 1913 -- the same year as the federal income tax -- as a backdoor approach to a central bank. It was developed -- like the various czars, Troubled Asset Rescue Program (TARP) and bailouts of car companies and banks -- in response to a financial depression, one that occurred in 1907.
In the post-meltdown world, Paul says it is irresponsible, ineffective, and ultimately useless to have a serious economic debate without considering and challenging the role of the Federal Reserve. Throughout the book -- and especially in the last chapter, "The Way Out," Paul shows how the nation functioned just fine without a central bank. The states don't have central banks and must rely on tax revenue to live within their means, he says. He would like to see a return to the gold standard, but even without this ideal situation we shouldn't wait for one before we end the Fed. Too, arguments that a central bank would prevent financial panics certainly haven't come true in the almost 100 years we've had the Fed. In his view, the Great Depression was at least partially caused by the actions of the Fed.
Questioning the Fed is like questioning Mom, apple pie and the American Way to most people who are unaware of its genesis at a meeting at Jekyll Island, GA. in 1910. Most people think of the Fed as an indispensable institution without which the country's economy could not properly function. But in "End the Fed," Ron Paul, a 2008 GOP Presidential contender and the 1988 Libertarian Party Presidential candidate, draws on American history, economics, and fascinating stories from his own long political life to argue that the Fed is both corrupt and unconstitutional. It is inflating currency today at nearly a Weimar Republic (Germany from 1919-1933) or Zimbabwe level, a practice that threatens to put us into an inflationary depression where $100 bills are worthless.
What most people don't realize is that the Fed -- created by the Morgans and Rockefellers at a private club off the coast of Georgia -- is actually working against their own personal interests. Paul's urgent appeal to all citizens and officials tells us where we went wrong and what we need to do fix America's economic policy for future generations.
Paul, a physician, is a dedicated follower of the Austrian school of economics -- he's a distinguished counselor to the Ludwig von Mises Institute, keeper of the fame for the Austrian school -- and he quotes many of that school's economists in his arguments against the Fed.
One of them is the late Murray N. Rothbard, who argued in his book "History of Money and Banking" that the Fed did not originate as a policy response to national need. It wasn't erected for any of its stated purposes. It was founded by two groups of elites: government officials and large financial and banking interests. Rothbard adds a third critical element: economists hired to give the scheme a scientific patina.
Opposition to the Fed has come from the Left and the Right. An AlterNet story on the Left quotes a study by Huffington Post's Ryan Grim ( priceless%3A_how_the_federal_reserve_bought_the_economics_profession?page=entire) makes the same point Rothbard made in his book: That the Fed has dedicated itself to marginalizing economists who question the Fed.
Grim writes that "The Federal Reserve, through its extensive network of consultants, visiting scholars, alumni and staff economists, so thoroughly dominates the field of economics that real criticism of the central bank has become a career liability for members of the profession, an investigation by the Huffington Post has found."
Like Paul, Grim says that "this dominance helps explain how, even after the Fed failed to foresee the greatest economic collapse since the Great Depression, the central bank has largely escaped criticism from academic economists. In the Fed's thrall, the economists missed it, too."
Grim quotes Joshua Rosner, a Wall Street analyst who correctly called the meltdown: "The Fed has a lock on the economics world. There is no room for other views, which I guess is why economists got it so wrong."
Grim says, backing up Ron Paul's assertion that Keynesian economics has dominated the field, that one "critical way the Fed exerts control on academic economists is through its relationships with the field's gatekeepers. For instance, at the Journal of Monetary Economics, a must-publish venue for rising economists, more than half of the editorial board members are currently on the Fed payroll -- and the rest have been in the past."
The timing is eerie, with the Huffington Post story coming two days before the Sept. 16 publication of "End the Fed": Both Grim and Paul cite the failure of the Fed to see the housing bubble as it happened, with former Federal Reserve Chairman Alan Greenspan saying that "a national severe price distortion [is] most unlikely." His successor, current Fed Chairman Ben Bernanke said that the housing boom "largely reflects strong economic fundamentals.
The Fed failed to see the housing bubble as it happened, insisting that the rise in housing prices was normal. In 2004, after "flipping" had become a term cops and janitors were using to describe the way to get rich in real estate, then-Federal Reserve Chairman Alan Greenspan said that "a national severe price distortion [is] most unlikely." A year later, current Chairman Ben Bernanke said that the boom "largely reflect strong economic fundamentals."
Despite all this, Bernanke has been nominated for a second term by President Barack Obama, convincing many observers that Obama's first term is becoming George W. Bush's third.
In a July 19, 2009 interview with Politico, the interviewer notes that "Dr. No" -- a nickname invented by his detractors -- is finding that "With the economy in the tank, the same cable news shows that spurned him during the election now keep asking him on to talk monetary policy. Republican House members are finally voting with him on spending measures."
Politico notes that "following his exhilarant, if quixotic, quest for the presidency, Paul finds himself simultaneously gratified and frustrated by his return to the friendlier-than-before confines of the House of Representatives. He thinks hes well situated in Congress to push for his libertarian causes, but then claims he doesn't 'pay a whole lot of attention" to the activity on the House floor these days, adding, "I don't think it's relevant to the big picture: A lot of this is just tinkering, bailing out, more money, more spending, no shift of direction and it's a little bit frustrating."
Ron Paul manages to unit those on the Left and the Right of the political spectrum. The book's jacket has this endorsement from liberal Arlo Guthrie: "Rarely has a single book not only challenged, but decisively changed my mind."
And, on the Right, actor Vince Vaughn says: "Everybody must read this book -- Congressmen and college students, Democrats and Republicans -- all Americans." Vaughn is a libertarian who concluded after reading an advance copy of "End the Fed" that "the Federal Reserve, which serves private banks, has compromised our economy and is undermining our freedom. It can and must be stopped now."
Whether you agree with Ron Paul or not, "End the Fed" is must reading for everyone, especially those who've accepted the conventional wisdom about the Fed.
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