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 tha