Who Wants to Audit the Fed?
An interesting narrative emerged last week about Ron Paul’s victory in the House Financial Services Committee. After nearly thirty years of advocating reform of (aka abolishing) the Federal Reserve, Ron Paul’s amendment to subject the Fed to a comprehensive audit was adopted with the support of all of the panel’s Republicans and over half of the panel’s Democratic members. As The Huffington Post suggested soon thereafter, “Key to winning Democratic support was a letter posted early Thursday from labor leaders and progressive economists.” That support, the author continues, enabled Paul’s Democratic ally, Alan Grayson of Florida, to show that “the liberal base was behind him.”
Was this really an ends-against-the-middle coalition? Liberals and conservatives (and one libertarian) ganging up against the center? As it turns out, that narrative fails to explain the political dynamics driving Ron Paul’s improbable win. Once we look at the behavior of Ron Paul’s Democratic co-sponsors, it’s clear that Paul succeeded simply by securing the overwhelming support of the committee Democrats who had already publicly endorsed his bill.
Were those Democrats disproportionately liberal? Hardly. I ginned up a little model to estimate the likelihood that a House Democrat would co-sponsor Ron Paul’s bill. A few trends emerge. First, freshmen Democrats were more likely than their colleagues to co-sponsor. Second, Blue Dog Democrats—not liberal Democrats—were more likely to sign on. Third, members of the Financial Services Committee—perhaps more beholden to the current regulatory structure— were less likely to lend their name to Ron Paul’s effort. Finally, Democrats from decidedly Democratic districts are actually less, not more, likely to formally support auditing the Fed.
The coalition to rein in the Fed appears to run from center to the far right—meaning that Barney Frank’s work is cut out for him if he wants to rein in Ron Paul and preserve some independence for an embattled Fed. Liberals are already on Barney’s side; converting moderate and conservative Democrats—eager to show some populist stripes by bashing the Fed as 2010 approaches— may prove a tougher task.
Comments
Or in other words, the less tied to the Democratic Party establishment, the more likely to support Paul’s effort. That shouldn’t be a shock.
Posted by: whatever dogg | November 24, 2009 01:47 PM
What are the best arguments against auditing the fed?
What similarly sized government bureacracies are audited? Aren’t audited? And what do other countries do?
Posted by: Hopefully Anonymous | November 27, 2009 04:40 PM
The GAO has essentially government-wide jurisdiction except for the Fed and the CIA. They audit everything Congress funds, which is almost all of the government. But the Fed regional banks are “owned” by their members. The real issue with HR1207 is the Federal Open Market Committee and FOMC does not use Congressional appropriations for open market activities and it doesn’t really “spend money” on programs in the conventional sense. So it has not fallen in the traditional purview of the GAO.
Main downside of auditing the Fed: opens the door for further (and substantively important) compromise of Fed political independence. Fed governors bear the imprint of the president that appointed them, and Fed branch presidents bear the imprint of their appointees (banks in the region). And the FOMC talks to the Treasury about policy all the time. So it’s not really politically “neutral” whatever that means. But it probably has an easier time holding the line on monetary expansion than Congress would, given that its leaders don’t have to run for office and answer to populist pressures.
HR1207 itself is not so damaging to the Fed. Its passage signals a weakening of Fed stature and possible problems in the future, but it’s not a big problem in itself.
Posted by: Pliny | November 30, 2009 01:07 AM