Sen. Rand Paul wants the Government Accountability Office to audit selected policies of the Federal Reserve, but some critics of the measure say Congress would gain too much power over the economy.
The Kentucky Republican’s Federal Reserve Transparency Act would expand the power of the congressional investigative arm to audit the central bank’s monetary policies that shape the economy.
“The Fed currently operates under a cloak of secrecy and it has gone on for too long,” Paul said. “The American people have a right to know what the Federal Reserve is doing with our nation’s money supply.The time to act is now.”
Supporters of the Paul proposal claim it is needed to ensure accountability of the central bank.
“The checks and balances of our system require accountability, and that should apply to the Fed, too,” said Mark Calabria, a Cato Institute economist. “It’s fair to say that the Fed has taken actions that are unconventional and out of the norm, historically. Should we question that? Absolutely.”
Paul’s bill, known informally as the “Audit the Fed” proposal, would allow any individual member of Congress to request investigations of the Federal Reserve’s monetary policies.
Giving that kind of potential political leverage to members of Congress gives some critics pause.
“The real question is, are the proponents of Audit the Fed legislation seeking to make the Fed more accountable,” said David Wessel, monetary policy director at the Brookings Institution, a liberal think tank,”or are they basically people who don’t like what the Fed is doing and see Audit the Fed as a lever to change the Fed?”
In a recent blog post, Wessel also pointed to the need to insulate the Fed from short-term political influences.
“Insulating those who set interest rates from short-term political pressures is believed to lead to a better economy over time,” Wessel said. “Prohibiting the GAO — an arm of Congress — from second-guessing the Fed’s monetary policy decision is part of that insulation.”
Calabria believes having the rigorously non-partisan accountability office conduct the audits would be sufficient to avoid political abuses.
“There’s a difference between the audit request itself being political and how it’s conducted,” Calabria said. “I don’t know of an institution in Washington that’s less political than GAO. I’ll take the political independence of the GAO compared to the Fed any day of the week.”
Calabria, however, pointed to the Soviet Union’s pure isolation of its economists. He also compared Rand’s proposed reform to Congress’ audits of the Pentagon.
“Congress doesn’t tell the Department of Defense how to win war,” he said. “But we do audit the actions they take.”
Calabria and Wessel agreed that the Federal Reserve’s lack of accountability audits leaves Congress uninformed and unable to ask rigorous questions when the Federal Reserve Board makes public its semiannual reports.
“Most of the members don’t know what questions to ask,” Calabria said. “To me, an audit would help. The purpose of GAO is to help Congress understand the programs.”
Audits would give Congress knowledge required for oversight of Federal Reserve actions without imposing excessive restrictions on it.
