Reason Foundation scholar, and economics journalist, John Tamny has written a new book titled Who Needs the Fed? If you believe Tamny and what he's written, then the answer is clearly, not us.
His book, published earlier this month, is about much more than the Federal Reserve, the central bank of the United States. It's about sound economic policy. It's about what works in economics, and what doesn't work.
He illustrates, using easy to understand examples, how the free market solves so many problems and that the government either doesn't solve or makes worse. It's a quick read and a reminder of the key things that make economies grow. Strong currency, less regulation, and lower taxes, to name a few of them.
The most effective example, in my view, is his discussion of how ride service firm Uber allowed people to get home after a Taylor Swift concert, albeit for a higher price than in a taxi, when the regulated taxi fleet in the area simply did not make themselves available in sufficient quantity. As Tamny writes, for every buyer there must be a seller. If the price paid for a taxi is suppressed by regulators then the supply of taxis will be lower than the potential customers desire. In short, surge pricing makes everyone better off. Somehow though, I don't expect politicians to welcome a free-for-all in taxi pricing. (If it moves regulate it, seems to be the motto in City Hall.)
Using that buyer-sellers analogy Tamny outlines how the Fed is basically impotent in determining the level of credit offered in the economy. Now to many people that may seem like a stretch. But because of the way he explains it, I think he's correct. For credit to be available someone must be willing to grant it. What they really grant is access to resources. That may be you or me, doing so through investing our savings, or it maybe a major investor. But whether or not the Fed changes short-term interest rates by a quarter of a percentage point would seem to have little to do with it.
He also attributes the housing boom in the 2000s to the weak dollar policy of the Bush administration. The greenback fell dramatically in terms of gold, giving people a huge incentive to invest in real assets, such as housing and commodities, rather than in riskier projects that promise technological advances. He likens the housing boom which went bust in 2008 to a similar situation in the 1970s -- a weak U.S. dollar brought about by President Nixon abandoning the gold standard, followed by soaring housing prices. Small wonder, he says, that both periods in question were marked by limp economic growth. To me that sounds like a much simpler, and better, explanation of the situation than many other convoluted analyses.
One area of the book that didn't work as effectively as it could have for me was a discussion of college football and the people leading the various teams. That's primarily because, like many people raised outside the United States, I neither follow the game closely nor understand its nuances. That example, while probably perfect for a large American audience, may limit the book's appeal in Europe or other places.
