Tag Archives: economics

Audit-the-Fed

Yes, It's an UPSIDE DOWN World. FED Chair Bernanke: "Auditing…would effectively be a take over of monetary policy by the Congress." ???

Audit the FedFor those of us who have begun to feel like we’ve slipped into a parallel dimension, statements like those on June 29 from the Federal Reserve’s Chairman don’t help us get back to “reality”.

Actually, reality is people like Fed Chair Bernanke are no longer even putting up a pretense about who is in charge of the United States’ monetary policy.

There is a pesky “little” problem with Bernanke’s attitude and statements.

That little problem?

The Constitution of the United States of America.

“Article I, Section I:

All legislative Powers herein granted shall be vested in a Congress of the United States, which shall consist of a Senate and House of Representatives.”

Section 8 references those legislative powers concerning “monetary policy”:

“The Congress shall have Power To:

lay and collect Taxes, Duties, Imposts and Excises,

to pay the Debts…

To coin Money, regulate the value thereof, and of Foreign Coin…

No money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all Public Money shall be published from time to time”

Section 10 references the forms of money to be used:

“No State shall…

make any Thing but gold and silver Coin a Tender in payment of debts;

Unless my reading comprehension skills are seriously flawed, it appears that under what is supposed to be the “supreme law of the land” in this country, the branch of government which is supposed to be in charge of monetary / fiscal policy IS Congress.

Unfortunately, what can we expect? After nearly a century of operations without any oversight, why wouldn’t the powers that be at the Fed believe they are in charge of US monetary and fiscal policy?

Bernanke’s ridiculously arrogant statement is simply the result of not following the Constitution. There were sound reasons why the Congress was intended to have exactly those powers.

Mr. Bernanke is not only arrogant, but he is also contradicting himself.

In 2007, Mr. Bernanke attempted to defend Fed actions by citing “the mandate given by Congress.”

If I had the opportunity, I would ask the Fed’s Chairman the following questions: “So which is it, Mr. Bernanke? Is the Federal Reserve independent or is it’s authority (“mandate”) granted by Congress? Or is it some twisted combination of the two, leaving us in a no-man’s land as far as the Constitution is concerned?”

Today's Fact: You, Too May Qualify for a Free Car!

Fact:  Massachusetts has a program for giving some welfare recipients a vehicle.

Notice the word “giving” was used. The word was used purposefully. Welfare receipients who receive a car from the state government keep them, forever, even when they are off of the program.

While on the program, those eligible recipients also receive state subsidized car insurance, and AAA membership.

I find the timing on this story interestingly convenient as my high school senior was just finishing up an Economics paper yesterday. The theme of the paper was focused on the fact that most governmental economic decisions are made without much thought about the long term or general impact of the policy.

To prove the theory, my student focused on minimum wage and welfare. He cited a true but weaker example that welfare recipients are afraid of going off of welfare because of the security blanket it provides and how long it takes to get back on. If they just stay on assistance permanently, their lives are more stable. True, but perhaps not the best example. In an assignment calling for about 750 words, its best to use the strongest example and reasoning you can find.

One of the biggest problems with welfare traditionally is that it’s overall benefits actually pay more than low wage jobs, particularly when you account for all of the assistance most programs provide such as Medicaid, subsidized housing, and food stamps. And that doesn’t begin to take in to account any of the other, tangential benefits such as school lunch programs, energy assistance, or educational subsidies like Pell Grants.

A 1995 Cato Institute study bears out the theory that welfare pays more. In that study, the welfare benefits measured paid the recipient and average of $10 per hour, compared to an average of $8 per hour for an unskilled wage.

And why is a 1995 study relevant? Because the Stimulus Bill rolled back welfare reform and added to it. And based on the general direction of Obama administration policy and the bent of Congress, it seems likely that there will be even more “investment” in this area going forward.

Regardless of whether or not the Stimulus Bill added to welfare, if one accepts the premise that welfare reform was rolled back, in today’s dollars (admittedly a rather nebulous concept) $8 an hour would be equivalent to $12 per hour, while $10 would be equivalent to $15.

Add a free car, insurance, and emergency road-side services.

What would you do, in absence of personal pride? Would you go get a job at flipping burgers at McDonald’s, stocking shelves at Wal-Mart, or straightening up the clothes on an Old Navy table paying $9 – $12 an hour so as to work your way up the chain over time and lose your benefits?

Or would you stick with the benefits you are receiving?

Fact:  Welfare is a trap. It’s a trap for the people receiving it, a trap for the economy, and a trap for the taxpayers.