Ben Buckman.net

Ron Paul has been calling for years to audit the Fed, and the House Finance Committee recently voted to do just that. My thought is that it's a really bad idea. The political climate isn't rational now; congressmen want scapegoats for the economy so they can get reelected. The Fed is supposed to be independent of politics for a reason: so the calculations that go into underlying monetary and financial policy aren't swayed by short-term or special interests.

But there's danger in secrecy too. I want transparency in government generally; I want to know who's making what decisions and why; the public has a right to know. If TARP and the stimulus should be publicly disclosed dollar for dollar, why shouldn't the Fed? We know the Fed has spent hundreds of billions of dollars on its own behind-the-curtains bailouts; it's dishing out dollars left and right and the potential long-term risk to the economy - of a dangerously weakened dollar, of runaway inflation - is real. I'd like to trust Bernanke to work his magic perfectly, but his predecessor Greenspan got a lot wrong, so why is Bernanke infallible?

And yet, I'm certain Congress and the media and the public won't know what to do with the audit results. Few people understand the environment the Fed works in; with so much mistruth spread about health care, why should we think the ensuing debate (and hearings, and witch-hunting) over Fed policies would be more constructive? What happens if Congress demands Bernanke's head -- even if Obama pushes back and Bernanke keeps his job, the government economists in China and the EU (who presumably think the Fed is doing OK so far) will have to worry about its future independence, and with it the future of sound dollar policy, and that could have huge ramifications.

Counter again: but we take the messy drama of open hearings and debate in every other realm, as irrational as it gets, because ultimately (we hope) it'll produce better results than secrecy. Why is the Fed so special? Tim Geithner could destroy the economy as easily as Ben Bernanke could; transparency are demanded of Geithner; some politicians want both their heads equally, why should there be a difference.

In the end I'm inclined to take this as a case of too much transparency, like Lawrence Lessig wrote about recently. I don't think a Fed audit will be constructive to the public debate or the legislative process at this time. The motives behind the audit are wrong, and really, we know what the Fed is doing, we just like to keep it secret, and for good reason, so let's keep it that way.