Skip to main content

tv   U.S. House of Representatives Legislative Business  CSPAN  May 10, 2016 12:00pm-2:01pm EDT

12:00 pm
today, convening for morning our speeches and beginning legislative is this at 2:00, including measures dealing with opioid addiction, drug trafficking and law enforcement. focus this week in the house on opioid addiction, including addiction among veterans and good samaritan laws for people who intervene in drug overdoses. stephen: the house will be in order. the chair lays before the house a communication from the speaker. the clerk: the speaker's rooms, washington, d.c., may 10, 2016. i hereby appoint the honorable randy k. weber sr. to act as speaker pro tempore on this day. signed, paul d. ryan, speaker of the house of representatives. the speaker pro tempore: pursuant to the order of the house of january 5, 2016, the chair will now recognize members from lists submitted by the majority and minority leaders for morning hour
12:01 pm
debate. the chair will alternate recognition between the parties with each party limited to one hour and each member other than the majority and minority leaders and minority whip limited to five minutes, but in no event shall debate continue beyond 1:50 p.m. the chair now recognizes the gentleman from tennessee, mr. cohen, for five minutes. mr. speaker, today on our calendar we've got about 10 bills dealing with a very serious issue in america. opioids, heroin. this is an awful problem we have in our nation. there's more and more use of openied and heroin and deaths
12:02 pm
resulting from it than any time that i can recall in the past. i have had a young friend a few years back died of a heroin overdose. i have known of other promising young people in memphis who have died of heroin overdoses. this is a problem that's been all over the contry, but predominantly in the northeast, and predominantly in caucasian areas. it's become an issue as it should, of importance. but none of the bills that we are going to deal with today, all of which are good, all of which i'll support, deal with the real problem. that is the recognition in our ountry that we treat all drugs as law enforcement problem, a criminal problem, and not as a health problem. and that we treat most all drugs on the same level and give law enforcement the same
12:03 pm
incentives to arrest dealers and/or users for any drug and not encourage them and give them reasons besides public safety to emphasize their enforcement on opioids and heroin. and our drug schedules which we have in our country that lay out the order in which we think drugs are the most serious, schedule 1 is at the top. in that classification is and , l.s.d., ecstasy, marijuana. i ask you each not to answer reflectively, which of those four don't fit? marijuana does not fit. our laws should show that
12:04 pm
heroin is a serious problem and that marijuana is not as serious a problem. that users should be dealt with in ways that don't put them in jail. don't in the case of marijuana, possession, cause them to lose scholarship opportunities, housing opportunities, and federal facilities or jobs later on. we also shouldn't have law enforcement through asset forfeiture get moneys from people they arrest to fund their activities by making arrests and having it be presumed in law that moneys and/or properties that involved in the transactions of those rug deals are involved and the law enforcement gets to keep those items. it gives law enforcement a reason to go after marijuana, which is easier to find, and
12:05 pm
make money than heroin. we need to study marijuana to see what its medical uses are and don't need to use it to incarcerate and cripple for the future for jobs, young people. we need to encourage young people not to do any drugs at all. not to do alcohol, not to smoke cigarettes, and that take their time to be youths, to be young, to learn, to fill their minds with knowledge for a better life later. but if as a youth or as an adult they should use an illegal substance, they should be dealt with as having a problem. and not be given a scarlett letter that stays with them the rest of their lives. so my work has been and will continue to be to try to make more sense of our drug laws, to see the scheduling is smarter, at heroins and openieds -- opioids continue to be at the
12:06 pm
top and marijuana is not listed and encourage law enforcement to arrest people that are dealing in, selling heroin and opioids. and causing death and causing people to be addicted to the point to where they will commit crime to secure moneys to keep their habit going. and not to have equal incentives to go after marijuana that does none of those things. i yield back the balance of my time. the speaker pro tempore: the gentleman from tennessee yields back. the chair now recognizes the gentleman from pennsylvania, mr. pitts, for five minutes. mr. pitts: thank you, mr. speaker. i rise today to bring attention to the research that the select investigative panel on infant lives is conducting. i encourage everyone to examine the exhibits from the select panel's investigation on their website, energy, commerce dot ouse dot gov/select-
12:07 pm
investigative-panel. on april 20, 2016, chairman marshall blackburn held a hearing on the -- marsha blackburn held a hearing on the pricing of fetal tissue and found broad consensus among federal witnesses that federal law may have been violated when abortion clinics profited from the sale of baby body parts. this grave circumstance has caused considerable concern because one of the underpinnings, so-called safeguards, of the statute that allowed for the donation of fetal tissue for transplantation research was that this tissue would not be sold. the author of the statute, former congressman henry waxman, stated during floor debate, 1993, quote, this amendment would enact the most important safe guards to prevent any sale of fetal
12:08 pm
tissue for any purpose not just the purpose of research. it would be abhorrent, he said, to allow for a sale of fetal tissue and a market to be created for that sale, end quote. and yet this is what is happening today. seen on exhibit b-2 the procurement physical, the name redacted, markets itself in its brochure as a way for clinics to make additional income by allowing procurement business technicians to collect fetal tissue and organs from aborted babe -- babies immediately after an abortion is completed. it uses the words, financially profitable. fiscally rewards. financial benefit.
12:09 pm
the select panel's investigation revealed that the rocurement business technician performs every conceivable task in the harvesting process immediately after an abortion occurs, however, procurement businesses essentially, the middle man, between the abortion clinics on one hand and the end users, the experimenters, researchers on the other, still pay abortion clinics a fee, even though the clinics are not incuring any additional cost in the process. exhibit d-1 shows the abortion linic charged the middle man $11,365 for harvested baby parts called, p.o.c.'s and blood. the abortion ws
12:10 pm
clinic charged the middle man, gain, this time $9,060 for harvested baby parts, and blood, even though the clinic did not incur any additional expense in the harvesting process. after obtaining the organs from the clinic, the middle man-made it easy for end users to purchase baby body parts. the procurement business order form, or drop down menu, for baby organs, illustrate just how easy this is. on the left side of the menu one can choose what type of tissue would you like to order? and under a multitude of options, a few of which are listed on the right, one could
12:11 pm
choose, up here at the top, brains, these are little baby brains. next you must select the number of specimens, i suppose one could say six, baby brains, continuing down the list of questions, gestational range from start to end one can select 16 to 18 weeks. then it asks, add another tissue type? one could answer yes. and scroll through the numerous options and have the opportunity to depict, for instance, female preproductive system and ovaries, you could ask for five of those at 15 to 16 weeks. then you can add at the bottom here tongue. the speaker pro tempore: the gentleman's time s expired. mr. pitts: so these are the options for crying out loud, this is the amazon.com of baby body parts. it's repulsive, outrageous, and i urge you to go to the website
12:12 pm
to see the exhibits. yield back. the speaker pro tempore: the gentleman yields back. the chair now recognizes the gentleman from illinois for ive minutes. >> thank you, mr. speaker. mr. speaker, i'm very concerned about some news that has come to my attention and the attention of the house recently, and that is that there is an iconic american aviation company that is the boeing company, that has entered into preliminary talks with iran. mr. roskam: and the thinking is for boeing to sell planes to iran. i guess when you first hear about that you say, well, what's the big deal? why is everybody so uptight about this? why can't everybody relax and let commerce happen? here's the big deal. here's why we ought not relax. here's why boeing shouldn't be in these discussions and ultimately it's my sincere hope, mr. speaker, that boeing
12:13 pm
does not sell planes to the iranians. the entire washington foreign policy establishment, that is the house of representatives, the senate, the united states state department, the administration, all agree on one thing. they all agree that iran is still the world's leading state sponsor of terror. there is no credible organization, there is no credible voice today that says no, no, that's not true anymore. in fact, the president has acknowledged this. the secretary of state has acknowledged this. the national security advisor has acknowledged this. and if that is true, and it is true, how can someone, how can a company, how can american institution say we are going to do business with them? and how can it be true that we are going to sell something that can be easily converted for the use of terrorism? ou see, planes are fungible. airplane parts are fungible. unless we think only boeing is
12:14 pm
beginning these discussion, we know what airbus is dorks they have made a decision to go in and do business with this terrorist regime. i am urging these companies and particularly boeing as an iconic american company, as a company that has come to symbolize what? american strength, american innovation, american greatness, and then to be complicit with the iranians and shear possibility i would argue probability that those airplanes would be converted to war planes. just so i'm clear, i'm not making an argument nor suggestion today that boeing is doing anything illegal. i'm not making that argument. but here's my point. just because something is legal doesn't make it good. just because something legal doesn't make it right. there's some people that are aying, look, other
12:15 pm
manufacturers, they are selling into that marketplace. let me ask you this, mr. speaker, when has history ever been kind to the excuse, somebody else was doing it so i decided to do it, too? history, mr. speaker, is a merciless judge and disciplinarian against that sort of argument. . what's the problem? it's the islamic revolutionary guard corps that dominates the economy and they completely dominate the aviation sector of the economy. iran air was taken off the terrorist watch list by the state department. most people think it was in agreement through the iran nuclear deal and it really wasn't deserved but they were only recently on it but regardless the fingeribility of these products can -- fungiblity of these products can move into the other parts
12:16 pm
of the sector. people say it's an emerging market and we should be selling american products there. no, mr. speaker. what we ought to do is recognize there are things more important than american profits and that is the integrity of american businesses, not to be complicit in this shameful activity and sort of draw a blind eye to this activity saying they won't end up in the hands of terrorists. it is naive. it's a wrong-headed prove and i urge boeing in the strongest possible terms not to be complicit in this activity. i yield back. the speaker pro tempore: the gentleman yields back. and the chair now recognizes .he gentleman from iowa >> thank you, mr. speaker. i come to the floor of the u.s. house of representatives to recognize and honor the accomplishments of an individual who eximpleifies iowan, means to be an to be an american.
12:17 pm
one is an iowa hero and legend and for good reason, bill has given much to the community. he spent his life giving back. throughout his life, his career and his efforts he's demonstrated and continues to demonstrate a strong commitment to our state and our country, to people. bill was born in 1926 and grew up on a farm in southern iowa. growing up was when bill first learned the values of a hard day's work. mr. young: he learned the value of making due with less and anticipating the needs of others, helping those less fortunate. he learned self-sacrifice, honesty, integrity. he's carried with him these iowa values throughout his life. ill turned 17 in 1944. observing world war ii from
12:18 pm
quite a distance in iowa, this young man heard the call to serve our country. he did not ignore that call. he answered it. now he convinced his parents to sign off on his enlistment into the united states navy. in the spring of 1945, bill ok part in the battle of okinawa on the u.s.s. catron. alongside many others across the country, bill bravely served and unfortunately, unlike many of these gentlemen who were with him who didn't come back, bill returned home. after two years in the u.s. navy and the end of the second world war, bill returned to allerton. he took business courses. took to real estate. rolled up his sleeves, got to work and soon formed iowa realty. now, under bill's leadership iowa realty grew, prospered and became the largest real estate company in iowa.
12:19 pm
bill has had some tremendous successes, but he's never forgotten his iowa values. instead, he continues to embody what it means to be an iowan. his selflessness and willingness to give back is evident in everything that he continues to do. he's known statewide. he's known nationally for his fill an tropic effort -- philantropic efforts and helping turn iowa's capital city, beautiful des moines, into the thriving metropolis we see today. now, i imagine i speak for many when i say how incredibly grateful i am for bill's donation of land to our state which was used for iowa's first and only veteran cemetery in van meter. thanks to bill's generosity, our veterans who iowa who so selflessly served our country have a final resting place.
12:20 pm
it is truly hallowed ground. and we as iowans have a place to honor our country's heroes, but as generosity to iowa's veterans didn't stop, he was instrumental in the creation of veterans' reception center in van meter where families and friends gather to pay respects following the burial of a loved one or friend. and it has helped bring the community of van meter, my hometown, together. mr. speaker, it is an honor to represent iowans like bill in the united states congress. he's generous. he's thoughtful. he doesn't forget where he came from. and he spent a lifetime embodying iowa values. he's given so much. he continues to give selflessly. he puts others before himself in ways that we'll probably never know, but that's ok if we don't know. he gives because it's the right thing to do. he's a humble soul with a big
12:21 pm
heart. i ask that my colleagues in the united states house of representatives join me in onoring bill, an iowa hero and legend. thank you. congratulations, bill. we're proud of you. i yield the floor, mr. speaker. the speaker pro tempore: the gentleman yields back. pursuant to clause 12-a of rule 1, the chair declares the house in recess until 2:00 p.m. to continue carrying conseeled sealed weapons. more from the house back at 2:00 eastern live here on -span. >> the campaign 2016 bus
12:22 pm
continues its travels to honor winners from this year's student cam competition. the bus made a stop at cherry hill high school east in new jersey to recognize six-time student cam winner for his second prize video, when the house becomes a home. went nn was -- madeline to pennsylvania to honor eighth graders, for their second prize winning video national immigration issues. during the ceremony, they donated $500 of their $,500 wings to the local charity. following this event, they went to clipon township middle school in new jersey to recognize the next big problem. over 250 classmates, teachers, family members and elected officials, including representative leonard lance, congratulated zachary. you can view all the winning ocumentries at studentcam.org.
12:23 pm
>> the kentucky democratic primary is a week away today. and tonight hillary clinton will hold a rally in louisville. we'll take you there at 6:15 p.m. time over on c-span2. and results from today's primaries in west virginia and nebraska. and then at 10:00 p.m. we'll be live with bernie sanders' campaign in salem, oregon. the oregon presidential primary is also a week away. the federal reserve was established over 100 years ago to stabilize the economy and avoid financial crises. yesterday, the american enterprise institute hosted a discussion on the history of the central bank and how it operates today. his is an hour and 40 minutes. kevin: hi. i'm director of economic policies here at the american enterprise institute.
12:24 pm
i've been here for going on i guess 17 years and when i first came here after being a senior economist at the federal reserve, i was placed in an office next to allen who is at that moment i think maybe halfway through the first volume of the landmark history of the federal reserve. so not only having worked at the federal reserve but having -- had had lunch many, many times talking about allen's history, i followed closely over time, the massive transformation that's occurred to the fed not even just through the last -- since the financial crisis but over my lifetime and before and to think the first 10 years of my life we were on the gold standards suggests that things have changed a lot and so when a friend at "the wall street journal" called up to ask if i would review a new book by a
12:25 pm
young university of pennsylvania professor named peter conte brown called the power and independence of the federal reserve i jumped at two things. one, rill do love the fed. i think it had a big positive impact on my professional life and it's a very important place here in washington filled with people who want to do the right thing. they sometimes fail but i love the spirit of the fed. second, i notice many people have not been writing about the fed ever since allen wrote his three volumes -- it's part one and part two but it's a three-volume thing. three types of economists, those who count and those who can't so he has two parts to a three-volume history of the federal reserve. but not many people have written and one of the reasons is his history is such an extraordinary accomplishment in the journal is true.
12:26 pm
but the second thing is if you go outside the sort of realm that allen existed in federal reserve history then there is a heck of a lot of weird conspiracy stuff going on and peter writes about that in his book a little bit. if you start thinking critically about the federal and say this is not what they were designed to do, then you have people walking down that path with you that wish weren't there with you. almost becomes really thinking about what the fed's doing constitutional, is it the case that founders, 1913 when they wrote the federal reserve act thought this is what they might be doing, that as soon as you start talking about stuff like that then you can start thinking about a crack pot. peter's defense of that is to write this really incredible scholarly, thoughtful book about what's happened to the fed since 1913, not from the
12:27 pm
perspective like allen from an economist but perspective as an attorney and legal historian who thinks a lot about whether the thing that you're doing you have the legal authority to do and so on. so peter was kind enough to agree to come and to tell us what he's learned as he spent five st -- guess, i guess or six years working on his own federal reserve history. after he does that for about 25 minutes we're blessed to hear from two of my former colleagues who are the two that i couldn't -- if i were to ever have a dream team to discuss this -- if i could get alan greenspan to join the panel, this is what the dream team would look like. ex pollock, who spent many years at the enterprise institute and then moved across to street to r street and then allan. so allan will be the first and
12:28 pm
then alex the second. we'll open up for general conversation around 6:30. i will be the moderator throughout. and we'll finish promptly at 7:00. at which point we'll have a reception out there in the main reception area where peter will be selling and signing books. so with that, peter conti-brown. peter: such a pleasure being with you today. thank you for having this event. i joked that i was impressed by your midst at the american enterprise institute. that was a particularly lame joke even by the low standards of someone who's introducing and talk about central banking. jokes can be pretty lame and still get a laugh.
12:29 pm
that is especially lame because aei is a place where can talk about serious things despite the priors, and despite the huge -- is it pronounced yuge -- results of the republican primary, i might be the only one voting democrat in this. i had a lot of hilarious trump jokes but my a.e.i. regulator judge is here and said good taste will counsel toward sew bright. i have a lot more to say substantively about what a trump presidency would look like for the fed and fed independence. today is a special honor because i'm sharing the day with my friend alex pollock and the host, kevin hassett, but also allan meltzer. for a young historian, there is no greater honor than to have my work engaged by professor metzler, who kevin noted, alled metzler the given of fed
12:30 pm
historians. hopefully my buttering up the panel will dull the critiques in the discussion after my talk. this is probably a false hope. anyone knows allan meltzler, he is not one to pull punches, and we have a few disagreements. kevin asked has the fed gone too far? i am going to make a somewhat different point, and raise some related preliminary questions. what is the fed today, and what is the best mechanism or mechanisms for ensuring that the fed is the central bank he -- we want it to be? reframing this argument, i am following a tradition that started with this man -- walter badgett. if you get nothing else from today's presentation it will be how to pronounce this important young's man. e is walter bagehot.
12:31 pm
ot bag-e-hot how it's spelled. it's like going to san francisco and commenting what an impressive three-point shooter that stephen curry is. you are welcome. thank you for the one person who watches nba basketball. please google steph curry highlights. ou will thank me for it. he is famous because of a book that he wrote in the 1860's called lombard street. sometimes unjustly and mistakingly credited with introducing a novel theory of entral banking and its emergency lending functions but the book is much more in favor of central bank transparency and governance, topics i will have more to say about in today's talk, but in his introduction to this important volume, he starts by talking about the subject of the bank of england, that it inspired a
12:32 pm
lot of existential certainty among interlocutors. i do not know if you can see that well, but in his words, two hosts of eager disputes ask the same question, are you with us, were against us, and they care for little else. i can give you my assurances that nothing changed from 1873 to 2016. from chatty cab drivers, to journalists, the most frequent question far and away when people learn that i have written a book about the fed and is obnoxious to let everybody know that i wrote a book about the fed is the same -- well, are you for it or are you against it? my hope with today's talk in the book itself is to push past that. i recognize this will be a task, perhaps. one need to only look at the title of books that poured forth from printing presses to get a sense of this phenomenon. ot all books are given the
12:33 pm
titles as stayed as "the history of the federal reserve" and i am glad your kevin hassett calling out our dear professor metzler in writing three volumes and calling it two. it is really a three-volume history of the fed. much more have sent lating titles -- "the creature from jekyll island," "the secrets of the federal reserve" drawn with an eagle. "the federal reserve conspiracy." and "the secrets of the temple." and then my favorite title, "do they think they walk on water: fed chairman and the federal reserve?" . though most of these equal parts ignorance and bad writing, there is a sense that
12:34 pm
the fed pulls lever of total power over the economy and the country, even with very serious books. and then "secrets of the temple" is a serious work of history and journalism. so we get other books that are much better regarded. central bankers are lords of finance. they are alchemists turge mortgage-backed -- central bankers are god, i guess, and in any case, the only game in town. it's a wonder then to bring a picture that might hurt you a little to see and opine for a past that didn't become the ture -- senator rand paul -- it's a little wonder he would find a what receptive audience with a question that kicked off his campaign, "anybody feel that the fed is out to get us?" so there's this feeling. there's something powerful, there's something sinister about the institutions that
12:35 pm
control our money, and these questions are as old as the republic itself. it was a battle between thomas jefferson and alexander hamilton. a battle between andrew jackson and the lesser-known nicholas biddle, and the commoner william ennings bryan, and the republican, william mckinley. the last one is less remember. perhaps the "hamlet" musical success will lead to a new remake that will focus on the story, but regardless, this idea, this contest, this eeling that institutions control our economy, our institutions political and economic, is a very old one. now, it is tempting to think -- in asking the question, why does this conspiratorial idea exist then? it's not that money is controlled by these institutions that prompts the conspiracies. maybe it is just because what the fed does is outside of the usual conversations people have ay to day.
12:36 pm
the kinds of things the fed does does not roll off the tongue over the dinner table, even with important things like negative interest rates, forward guidance, quantitative easing -- what are these things? it is too technical, perhaps. as a law clerk, to invoke judge williams' name again -- as a law clerk on the d.c. circuit we called interacting with the technical jargon of administrative agencies administrative law. it happens everywhere. i remember my first two cases in chambers. i'm not sure if judge williams does. they are both on the clean air act, and good grief, i still haven't recovered. this multiplies across substantive rounds, whether we're talking about securities law, communications policy, the mother lode of them all, at least in judge williams' chambers, federal energy policy. the law of bureaucracy is a technical one, so there is nothing special about the fed
12:37 pm
in this respect. so, to give you another cover of another book, this handsome volume that some of you -- i hope more of you after the talk is over will have in front of you -- i think the reason why so much of what the fed does nd is inspires smart people to ask questions, and when they do not have the answers, to the -- lean on conspiracy theories, comes in this title of the book -- both from its extraordinary power, and its exceptional independence. as powerful, and as quote-unquote independent as the e.p.a. or the f.c.c. or ferc is and as powerful those entities are over their slices over the economy, there is a reason why the fed chair is sometimes called the second most powerful person in the united states after the president, or as some have said the second most powerful person in the world after pope francis. it is not power alone. it is independence.
12:38 pm
today i want to peel back some of the mystery behind that term, independence, and i want to push back with walter bagehot against some of the certainty of the interlocutors, those eager disputeants who demand to know where each of us stand on the question -- are you for the fed or against it? perhaps we can put our gun back ask holster a bit and the questions -- what is the fed, and what do we mean by this term independence? it is ubiquitous in the iscussions of the fed. fed independence is a sleel separation between politicians -- usually we're talking about the president facing a national electorate and central bankers. usually we mean the fed chair. and the reason for the separation is so the fed chair
12:39 pm
can use fairly technocratic tools and skills of macroeconomics low -- to keep inflation low. now, the president also has an interest, sometimes, in keeping inflation low, at least generically, but the president, perhaps, as a bigger interest in reelection, or maintain a legacy. -- a good legacy. when he or she has to choose between re-election, legacy, flakes will go out the window. bank is created , to prevent the president and other politicians from goosing the indy -- the economy. it comes tumbling forth from that. it is a ulysses contract reminding us of odysseus. his ulysses contract comes because ulicies desired to hear
12:40 pm
e -- ulysses desired to hear the sirens without destroying himself, his men, it is ship. we hire central banker oarsmen and women with beeswax, also made of law and macroeconomics, and we stuff that legal and macroeconomic beeswax in our ears so they can guide the ship to a land of economic prosperity with low inflation. we, the people, by the way, are the sirens in this metaphor. fast forward to a new millennia, and we get a different, more pervasive metaphor, from the fed chair william mcchesney martin. and he says, "the fed is in the position of the chap rone who has ordered the punch bowl removed just when the party was really warming up." interestingly, though not inappropriately, given the past decade of fed policy, it is much easier when you google punch bowl to find people spiking the punch as opposed to taking the punch bowl away, but that is a general idea -- the fed chair is keeping us interested in the party but not getting it too
12:41 pm
out of control. in my book i argue that this ulysses chap rone model of fed independence -- one, the law is doing the work, second, the president is trying to influence the fed, hree, the fed is sangle entity, four, the work of central banking is purely technocratic, devoid of values, judgment, or ideology, and last, the fed is this primarily or exclusively for price stability. this model is wrong. ere i think is where professor meltzer's ears are perking up and the debate will be joined. sometimes the model is wrong because it is incomplete. sometimes it is wrong just because it is wrong. so, if the ulysses chaperoned model is wrong, what is right, and that is what my book is about. first, the fed is a they and not an it.
12:42 pm
n this political sense, the description of congress, the fed chair matters, no question about it, but the internal governance of the fed reveals there is so much else going on within it to set the parameters within which the fed operates with participation from governors who are themselves political appointees, other members of the federal open market committee, reserve bank presidents, not selected by the president, and including fed staff, especially economists and lawyers, but also bank examiners. so these are the other parts. second, the president matters. no question about it, but so, too, does congress, bankers, financial markets, international central bankers, academic economists, and many others, focusing exclusively on the president as the outside influence or or attempted nfluencer misses how the fed -- misses the much broader reality of how fed makes
12:43 pm
policy. third, law matters. by law, we mean the federal reserve act. but here's the important point. law matters much less than we think. i'll give a couple examples in a moment but the bottom line is the idea that law creates independence is mostly false, and indeed, sometimes law does e very opposite what we've been saying it does, as far as insulating the fed from political match nations. -- machinations. instead, leadership and ideology matter enormous amount about the way the fed interacts with these outside audiences. fourth, the idea that fed independence can only be justified in terms of price stability -- this is a curious assertion, and it is serious -- curious because of the intellectual history of central bank independence and price stability. it arises in a moment in the late 1970's that extends to just before the financial
12:44 pm
crisis in the mid 2000's. in that period, the idea of price stability arose as central banks globally participated in a successful experiment at combating inflation, while simultaneously the intellectual apparatus developed by the macroeconomist and economic theorist and political scientist were theer rising what it would be and this is largely the fruit of those labors. ironically, at the same time in united states, the federal reserve act was amended to give the fed what we would often call a dual mandate. it is actually triple mandate of price stability, maximum inflation, and lower, long-term interest rates. so, when we add that to the mix of its financial regulatory functions, bank supervisory functions, its supervision of the payment system, systemic risk regulation and emergency lending authority, you see that
12:45 pm
the fed is it multifunction entity. finally and perhaps most provocatively to my central banking friends, the idea that central banking is purely the work of technocrats is also false. this is not to say that technical training is irrelevant. ery far from it. the point is that the most interesting and indeed hardest questions a central banker will face are also technical apparatus is exhausted. fter technical and techocratic consensus has broken down, there is a gap between that breakdown and the point at which decisions are quite. it's raises the question, what fills the gap? you can say central bankers are making decisions with which you are ee because they stupid, but i think the softer reality and the better reality is that they are making these decisions, not because they don't understand the question as well as you do,
12:46 pm
but because that gap is being filled by a different worldview, different values. to use a word central bankers hate, a different ideology. now, that word, ideology, the reason i say central bankers hate it, that's the part i hated was the idea that central bankers are doing anything -- ideological. there is no ideology anywhere. when i'm saying they are ideological, i am saying they are human. all right. i am not saying that they are partisan, trying to make the central bank do something to make donald trump or hillary clinton win an election. instead, what they're doing is refracting a world of uncertainty under uncertain conditions through their own lenses of experience and influences to bridge the gap between what their ph.d.'s or other training tells them must be done and in scenarios that have been historically defined and what they confront in a world of changing and uncertain conditions.
12:47 pm
so, that is my book in a nutshell. more interesting than this thought -- because i feel it with lots of historical examples and that kind of thing. i mentioned that law is doing -- not doing the work that people think it's doing so let me be a little bit more specific on two points. first -- fill in -- sorry -- the rest of that chart. let's talk of what the governors -- how the board of governors is structured to insulate them from presidential politics in the federal reserve act and how this actually works in practice. second, i want to raise a question recently raised by presumptive republican presidential nominee, donald trump. and whether the president can marely fire the fed -- summarialy fire the fed chair. let's talk about the governors -- the governors serve one nominal noble -- nonrenewable term. it makes them look more like
12:48 pm
federal judges. there is something special about the number 14, but that doesn't have any to do with length of service, per se. it has more to do with presidential elections. the idea was to have no more than two vacancies on the board of governors before the national electorate could reconvene to determine whether the president's vision of fed appointments should be added to the democratic stew and voted upon. before the fed had been transformed by a single president. indeed, to keep that gap at two-year intervals, the federal reserve act was written so that in the event of early esignation or death, a new governor could fill the stub term. that was the exception of nonrenewability, the unexpired term of a predecessor could be, itself, part of a term. so, that is a legal theory. what we would expect to see in this last column here is the number .5.
12:49 pm
that would mean a president gets half an appointment per year, two at the end of our. take a look again, and you will see that only one president, john f. kennedy, had an appointment experience that matched the federal reserve act's architecture. for reasons we can discuss in the q&a, perhaps, governors simply do not fill their terms. there are even incentives if you do fill your term but they don't fill it anyway and with all those early resignations it's meant that presidents get largely to choose their board. the law isn't doing what people think it is doing, but in fact the opposite. at least in this case and the book discusses many others. that takes us to mr. trump. with my apologieses for those serious republicans for whom the idea of this entertainer is a painful thought. so he's raised some important
12:50 pm
questions about the fed only recently. he was quoted as saying he ould most likely remove janet yellen as fed chair and replace her, although he said he favors her policies. i'm going to put that contradiction to the side and ask this question -- could president trump legally fire, summarily, a fed chair. here is the way "the wall street journal," reports. by law the president aponets the fed leader with senate confirmation. -- president appoints the fed leader with senate confirmation. once in office, fed chiefs can only be removed for cause, if they commit some sort of wrongdoing or they are found unfit for office. president cannot remove a chairwoman or chairman because of differences of the policy. besides the first sentence, there is nothing that is true about what "the wall street journal" has reported. there is nothing at all in the federal reserve act that speaks to the president's authority or not to remove the fed chair. this four-caused protection referenced in the article refers to the board of
12:51 pm
governors, not the fed chair, nd every fed chair is filling two statutory roles -- one, has a 14-year, term-protected fed governor, and the other is a four-year term-protected chair. what about the removeability of the governor? that is kind of clear, it says for cause, but for cause is not defined. what does for cause mean ere? we would rely of the courts to fill the blank. i think this supposition is probably correct, although there are some of judge william's colleagues on the d.c. circuit that have written in concurrent opinions that they think the protection scheme is itself unconstitutional, and thrown that out. suppose that is there to stay. does that mean president trump could fire janet yellen? i think the answer is yes, legally. there is nothing in the federal
12:52 pm
reserve act that says anything to the contrary. there is not a legal protection here where we would think the legal protection would be most necessary. but keep in mind what would happen if donald trump played that out. called janet yellen, your services are no longer required. you are fired. that would fire her as chair. they would return on the board of governors. there is a scenario. arry truman really hated marionette. he said i'm not going to fire you, but i will offer you the vice chairmanship because i just want to be a jerk. he said no, but rather than doing what truman expected he would do and return to his millionaire banking empire in salt lake city, utah, he just returned to the governorship, and wreaked havoc on president -- on the fed for another -- on president truman from the fed for another three years. so that would mean the janet yellen could stick around. it also means that even if there is no litigation janet yellen would pursue in being
12:53 pm
fired, donald trump would then rely on the senate to confirm the replacement and there i think the senate would have a very appropriate position to say we don't like that tradition. but a tradition it would be, not a legal protection. think that's important. so the question -- that's an open question, then. what president trump take that risk? i don't think any president making careful political decisions would, which is why have not seen much of what we saw with truman. i would confess that very little -- very few of my prognostications about the republican primary have come about so i will not go on record saying anything in particular what donald trump will or will not do. only to highlight just how much tradition is behind what we conceive of as fed independence as opposed to law. let me conclude with addressing kevin's question head on. as the fed gone too far?
12:54 pm
much of my discussion today has not been about history, but about structure and governance. the first third about my book -- of my book is about history, and i am writing a larger comprehensive of the fed that will be out in about four years. i ponder a larger question -- how the fed today relates to how it was founded and changed over a century, in great detail. if we were to change the question, has the fed gone too far, the answer would be a resounding yes. let me give you one quick example i highlight in the book. there was a comic scene in the early history where the members of the -- what was then called the federal reserve board, rather than the board of governors, struggled with an awkward question of social protocol. the newspapers dubbed the new board the supreme court of finance, which will be the name of my new book on the history of the fed, and the board thought they were entitled to a pretty high place in the social scale.
12:55 pm
how high wasn't exactly clear but william mcadoo, the one who the gingly had to feel questions, understood that these bankers and bureaucrats that not want to be pal and istant stars lost in the milky way of officialdom. the stated premise and board members and the state department said they would sit in line with other independent commissioners or commissions in chronological order of the legislative creation. so that meant that the fed would follow the smithsonian institute, the pan-american union, interstate commerce commission, and the civil service commission anytime there was an official state dinner. if they satisfied the members of the fed, the question was taken to president wilson himself and as secretary reported it, a shadow of a frown came on his
12:56 pm
face. as the -- he said, i could do nothing about it, the president remarked. i'm not a social arbiter. the president retorted they might come after the fire department. how, mcadoo evidently pleased as he recounted this exchange if his memoirs explained he never told the members of the board what the president said. it would have caused them needless pain. the state department's view carried the day. i relate the story. can you even imagine it today the idea that the president would say, i will come after the fire department, for all i care? absolutely not. town, , the only game in in said we trust, their power is extraordinary indeed. the question, has the fed come far, the answer is a resounding yes, but is it too far? here, as i write the fed history, i am struck by how little of the frame's vision has held sway but not just
12:57 pm
today but in each generational intervention that remakes the fed in its own image. the theory of institutional change that guides my storytelling in this new book isn't a framer focused vision at all but one that i think is more realistic and that is that the fed is constantly being reinvented. sometimes that reinvention comes through formal legislation like the federal reserve act, of course, the dodd-frank act more recently. but much more often these kinds of changes happen through the everyday decisions of insiders and outsiders who seek to influence its policies. and this is why elections matter. this is why appointments matter. and this is why governance matters. if we want to know more about the values after the technical apparatus is exhausted, given how much power resides in those hands, we need to know more about the people whose hands they are. nd this is another way that --
12:58 pm
another place where professor melzer and i part ways -- on the inherent stickiness and slipperiness of law, where long can rear its head generations later in places you would least expect it, and the places i'm talking about is why i would be opposed to write enable it to the federal policy act. he we want a taylor role, things tied to things like interest rate, output gap, target inflation rates and the like, we should put john taylor on the board of governors, rather than amending the federal reserve act. now, the system as we know it today, is governed by exactly this kind of archaic structure that barely made sense in 1913, makes almost no sense in 2016. it is better, in my view, not to bury the bodies of temporary political disputes in the federal reserve act where they can cause future generations so many head aches. that's why in my book i'm thinking at the level of governance and personnel as opposed to the level of
12:59 pm
micromanagement. this is why this presidential election is from my perspective of a federal reserve scholar, and among those who think seriously about monetary policy and financial policy -- why this presidential election is so much more important and influential than those in the past. a romney fed and obama fed after 2012 would have looked different. even including on these very questions of monetary policy rules, no question about it, but the differences would be between interlocutors that speak the same language and have most of the same values, and much of the same technical apparatus they are using to evaluate even competing proposals. the same simply cannot be said about the present contest. in this sense, i am not sure of the appropriate historical antecedent. in this area, as in so many other areas, the trump campaign is taking us into monetary
1:00 pm
incognito. [applause] mr. hassett: before i handed off to allan, i have one follow-up -- the same structure that gives us -- alan greenspan is a person i think of the being effectively independent, but arthur burns was the opposite, and they existed in the same legal structure. and that is one of the fascinating parts about the book. he take about how we have tried to guarantee independence. the first thing is can you talk a little bit about arthur burns and how he was an independent, and how the legal structure didn't do anything about it, and then the thing that puzzles me -- if i were a person
1:01 pm
train in the law, maybe what i would do is maybe we need to modernize the federal reserve act, come up with ways to make sure we don't get arthur burns. you just despair of that, it seems to me. maybe you have learned that laws in this space have no effect. you might as well give up trying to write them all together. it seems like that is what you are saying. tell us a little bit about arthur burns and why is it we shouldn't try to think about what we mean by independence and try to change the federal reserve. mr. conti-brown: arthur burns was a fascinating his best figure in fed history. many in the room might remember his reign as fed chair. one of the interesting stories that i relate in the book that i found, and this was not hidden, richard nixon wrote this book "six crises." has anyone read that book? it was a very big book in the 1960's. mr. hassett: there are about five hands up.
1:02 pm
if there were six, we would have one for each crises. mr. conti-brown: he talks about how arthur burns, who had been the chair of economic advisers to eisenhower, called nixon and said you need to get the eisenhower administration to push the fed toward easier policies, otherwise the election is going to go to the democrats. there are two things remarkable about this story one thing that happened we need the administration to aggressively push the martin fed, something that the eisenhower administration had been steadfast about not doing, and m that number two, nixon and burns wrote it down in a national bestseller. there was nothing to hide about this kind of collusion. it really set the stage for the burns-nixon relationship. ome of this is innuendo.
1:03 pm
we have none ehrlichman writing a book which is a lot of it is self-serving. but arthur burns comes off as just the message boy for the nixon administration, holding off hard decisions in order to keep the nixon administration politically afloat. but his diary itself has been published recently by the university of kansas press, called "the secret direries of arthur burns." in it you get all kinds of statements and journal entries where he's saying how much he loves richard nixon. how much the fed policies, what's good for the fed and country is exactly identical as what's good for the nixon administration's politics. yes, we have a burn's appointment that is completely subservient to richard nixon. one of the most important monetary decisions that happens the 20th century, the close
1:04 pm
-- closing of the gold window in 1971, and finally in 1973. yes, we see the fed, then, as an ajudeant to the white house and treasury as part of the unified political and executive team. something that some people view as actually required. some people want an exy tension fed, that's often what we are talking about. why do i think you can't ledge state that away? legislate that away, and part of that is the frustrating tension between democratic legitimacy on the one hand, and the idea of technocratic competence on the other. we want to keep this technically pure central banker doing things with the beeswax in the ears, so they are not influenced, and i think that is a mirage. i do not think it can appen. i'm down right churchillian, it's a bad system to have
1:05 pm
elections influence central bankers at the level of personnel, but identify a better one. does it have the chairs of all the economic departments of the ivy league weigh in and decide to gets to be the fed chair? that's not a good system. what we want to do, have that democratic input where you're going to get people like arthur burns, and frankly, mayor eackles is one of my hero, the same legislation that takes the secretary of the treasury off the federal reserve board in 1935 coincides with the most subservient federal reserve system in history between 1935 nd roughly 1951. so, legislation can really matter. the federal budgetary independence, for example, it is not subject to appropriations. that matters a lot. that is a legal difference to be sure, but the idea that we can micromanage that structure by writing ever more technical and verbose statutes that really try to solve the last problem, that leads to an
1:06 pm
insanity-generating game of legal whack a mole. i think the better approach is to think here is the system we have got, it is flawed, so we should think seriously about politicians we elect who will be influencing the selection of these central bankers, but also vetting the central bankers such that the attention they receive is commensurate with the power that they wield. we shouldn't see the republic threatened to carom off the end of the universe when antonin scalia dies, and be dismissant about how many vacancies we have had on the federal reserve during the entire obama dministration. dr. roach: alan metzler mr. hassett: alan metzler
1:07 pm
prof. metzler: how you turned down an invitation? from a friend who is an old friend, who refers to you as a given of federal reserve history. can't do that. in any case i'm happy to return to what i wrote much of my history of the fed, the reason there are three volumes, just to settle that minor problem, is because the second volume was so big the university of chicago press decided to publish it in two parts. [laughter] prof. metzler: another reason for being pleased to return to aei to discuss federal reserve policy is that i owe a remendous debt to chris, was the president for the 14 years i commuted here from pittsburgh. he supported -- i do not think there is another institution of its kind that would have
1:08 pm
supported me for 14 years and hired extraordinarily good research assistants to do the legwork of going through the enormous amount of material that there is in the fed records, so i owe a great debt to my friend chris and aei for aking the book possible. i'm very pleased to discuss peter's book on fed power and independence. let me start with some parts of the book that i like most. the fed's political as well as an economic institution. you cannot be in washington without being a political institution. the book, appropriately, is a work in political economy. it gives much attention, especially to the role of the president. the answer to the question that peter just gave which said it
1:09 pm
is impossible to find ways in which the chairman of the fed is as independent as the law might like to make him, i think he is wrong about that. i think ronald reagan, jerry ford -- several presidents took the position that interfering with the business of the fed was just not part of their responsibility. so, ronald reagan never nterfered with paul volcker. he agreed with what paul volcker was doing. when they would meet on regular occasions, paul has told me what president reagan would do is tell him jokes. so, i believe it is possible. it is not possible with some presidents. it wasn't possible in the current administration, and i will come back to that. surprisingly, though, peter gives less attention to
1:10 pm
congress. it is surprising because the constitution gives congress the final responsibility for monetary policy and money -- article one, section eight of the constitution that makes congress responsible for what goes on, and the fed is the agent of congress. congress approved the federal reserve and approve this very peculiar structure that peter would like to modify a great deal more than i would. the professor has an interesting chapter -- he is troubled by a few staff that have had political roles. ted schuman is one of them. as the international -- head of the international division. he was sent to mexico and asia on what were essentially political missions. he proposes, therefore, that the senior staff be subject to appointment by the president. what ted schuman did was
1:11 pm
political, and it should have been done by the treasury undersecretary. it would never have happened to be done by the fed if paul volker was, as he later became, the under secretary of the treasury. so, we need to know more about why a fed staffer was used. i oppose peter's idea of having a president appoint staff members because it further harms what little remains of the fed's independence. also, there is a good discussion of the rewriting of the rules governing the fed's operations. these changes, over time, changed the very central issue that congress discussed. not how monetary policy should be conducted -- that was the gold standard. no one disagreed with the gold standard, or at least no one openly disagree with the gold standard at the time. what they argued about was who
1:12 pm
was going to control the printing of money? the bankers thought it should be them, and the politicians thought they were the people most responsible, and they argued about that. that held up the legislation for a long time. woodrow wilson came up with a compromise, which was that there would be a board called political from the very beginning in washington, and there would be regional banks to satisfy the bankers, and the regional banks would be quasi-independent. they would have their own discount rates, and so on. well, that was a misunderstanding of the economics of what would happen once it was a single monetary authority for the country. bankers lost the ability to have independent discount rates. but the wilson compromise was
1:13 pm
what initially got the fed act through congress. it immediately set off a fight, and argument, over how the fed was going to be run, and because of strong intellectual ability of benjamin strong, it was the banks that got control of the initial fed operations, nd they managed to do that rom 1914 until 1933, 1935. anyway, it is good that peter goes through how these political changes came about and why they came about. from the earliest, d.c. was seen as the political arm of the fed and the reserve banks more representative of the economy, and that is even more true today. the reamon reserve banks have shed their influence of bankers. their directors are broadly representative of their
1:14 pm
communities, including labor union members, while the board of governors has often become much more political. i agree with peter that the new york fed is something of an exception. it hasften been captured by the bankers in new york, and therefore they were not always acting in the interest of the public. that is not inevitable. there were, as i said, presidents -- strong, who was definitely correctly named. there was volker. i worked in the kennedy reasury. paul volcker came to be my boss, so i have known him since 1961, and i assure you. no one told paul volcker how to un the new york fed.
1:15 pm
there are three major issues on which peter and i disagree fundamentally. first is the issue of ndependence. second is the safety and soundness of regulation. third is the role the u.s. president and what i regard as the increased politicization of the fed. can we keep the fed out of politics? should we? on this issue professor conti-brown and i are far apart. i made this a separate issue, but it is truly part of independence. let me start with independence. the book says the reason is to isolate monetary policy from politics. it doesn't go on to say that the main reason for the separation is to avoid the use of monetary policy to finance the government's deficits. that is what -- they had in mind -- to prevent inflation -- that is what the argument was about -- who was better able to prevent inflation by an
1:16 pm
independent federal reserve. the congress or the agents of the congress in washington? or was it the bankers representing the public out in he prairies? that was a lesson on which bankers, economists in 1913, ost of the public, and most of -- and members of the wilson administration, including the president, agreed. they all accept the gold standard as a means to that end -- the extent of the agreement on price stability was much greater then than now. the early fed had two strong provisions to do, to prevent inflation -- just exactly two. one was a monetary rule. the nish rule was the gold standard. that weakened in the 1920's, and disappeared in the 1930's. the current fed response to
1:17 pm
noisy, current data, as if it were the god's truth. a rule would give markets about future policy actions, but current procedure increases uncertainty greatly. it sets off a wrath of discussions about will they, won't they? are they going to? won't they? what the hell does all that have to do with the price of beans? very little. what people should want to know is where will be one year or two from now when the policies have their affect? you get no information from the fed about that? will they increase the rate in june? who knows. they don't know, so how can you know? that is a bad system that creates massive uncertainty we could avoid. the second restriction in the 1913 act was a total prohibition against direct financing of the treasury. in world war i, the fed circumvented this prohibition
1:18 pm
by lending at below-market interest rates to bankers who bought the treasury bonds to finance the war. soon after, the fed learned to use open market purchases to circumvent the prohibition totally. it couldn't finance the treasury by lending directly because the law prevented that, but it could buy the treasury's bonds in the open market as soon as they were issued. the two prohibitions designed to protect the public from inflation or deflation were completely gone by the 1930's, and no rule replace the gold standard until the u.s. agreed after world war ii, and i will come back to that. we can probably accept that financing the two world wars by inflating was exceptional -- was an acceptable violation of the independence. unfortunately, the violations continued.
1:19 pm
treasury secretary morgenthaler would not tolerate the slightest interest in market interest rates. peter referred to eccles as the most aggressive or independent federal reserve chairman. the opposite was true. the fed mostly accepted morgenthaler demands, and his frequent threats to use the profits from devaluing the dollar that he had gotten when the dollar was devalued, that he would use that to purchase debt in the market and engage in his own open market operations. if it was an 8th of a point increase in interest rates, he thought the u.s. would shake. he did things like invite all the members of the open market committee to his house to berate them. and to tell them at the time a quarter point interest rate increase would be a disaster for the country.
1:20 pm
the fed responded to political pressure and didn't permit wartime interest rates to rise until 1951, five years after the end of the war. it felt, if you read its discussions, it just felt it didn't have the political clout to do anything about that. it later acquired that clout, a lot of it, with the help of senator douglas, a democratic senator from illinois and distinguished economist. he martin fed began in the 1950's with a policy of what was called bills only and that as very controversial. the left wing of the political spectrum wanted the fed to
1:21 pm
engage in all kinds of operations in the long-term government market. martin wanted at the time the bond market to be able to stand on its own two feet after all the years of nurturing through the war and five years of post war. didn't want to engage in any operation that involved purchase of long-term debt. and so he, under the influence of his chief economist whitfield reefer came up with ills only. sometimes bill preferably, but by the 1960's, martin had a change of heart. he became convinced at the time of the kennedy administration by a political argument that said that congress passed the budget and the president signed the budget and therefore he was obligated o help finance the budget.
1:22 pm
that's the exact opposite of what the federal reserve act was designed to do, to keep him from financing the budget deficit but that's what he decided he had to do and the result was he began to build -- growth money and credit rowth. when he left office, they were already in the beginnings of an inflation and arthur burns became the chairman. he financed deficits with money and blamed labor unions for inflation. that's what you get when you get a political fed. you get untruths, call them lies, perhaps. that happens. burns said it's the unions that are causing the inflation. so he sprinkled a little more money into the system -- so he sprinkled a little more money into the system. as a distinguished scholar and former head of the national brew row for economic research,
1:23 pm
he must have known better and surely if he didn't, his for -- very close friend milton friedman would not hesitate to tell. so burns gave up federal reserve independence in peacetime for the benefit of president nixon and peter quoted some of the relationships between nixon and burns. burns did things like attend cabinet meetings and he really thought of himself as part of ixon's administration. and that continued until paul volcker, an independent cuss if there ever was one, restored independence and greenspan maintained it. but the bernanke fed, after avoiding a possible disaster, financed the enormous budget deficits at low to zero interest rates, and as an conomist who knew both
1:24 pm
burns and bernanke, it hurts me to say that the two worst chairmen to date have been academic economists. burns and bernanke. they didn't lose independence, they gave it away willingly. bernanke broke the post war understanding that nations would not engage in competitive currency devaluation. that was the essence of one part of the bretton woods agreement. there had been competitive -- devaluations in the 1930's that had not wocked any better than they had been working recently, t it was -- it was the agreement that began, the u.s. treasury continued, to ban further -- to get the bleeding central bankers to ban further efforts at competitive currency devaluation.
1:25 pm
bernanke called it q.e. but it's proper name is currency devaluation and it has now been copied by japan and the e.c.b. to think that central bankers would lie to you? let me turn to safety and soundness. professor conti-brown, like dodds-frank in the regulations pouring out of the fed. he even approves of the protection bureau that permits n administrative agency to use the federal reserve revenues, taxpayer money, to enforce regulations on which congress has no say. now, our constitution has two sentences that are hard to misinterpret. one is the sentence that says "article i, congress makes all laws."
1:26 pm
another part of the constitution says "congress ppropriates all moneys." now, you can be a lawyer and you can play with those words but it's difficult to get the sentence that says congress makes all laws to mean anything but that congress makes all laws. but where do these laws come from in our system? from the administrative agencies, not from congress and where does this administrative agency, the finance committee get its money? from the federal reserve. what is that money? that money, 90% of which goes back to the treasury so it's taxpayer money so here we have n agency which makes its own rules and some whoppers that i can mention for you in a inute.
1:27 pm
and pays for them by simply ip its hand into the treasury. our constitution forbids such actions. that's what cfrb does. it is an outrageous vie lailings of the rule of law. my reading of the history of financial crisis is that regulators locked the door against the source of the last crisis. neither regulators nor others -- foretell ow how the next one will develop. they completely miss the causes of the great depression of 1929, the great recession of 2008, and much in between. with that in mind, i testified four times on the dodd-frank bill. i urged less discretionary legislation with a rule for the largest banks they be required to hold a minimum of 15% equity eserves.
1:28 pm
my proposal became a centerpiece of the bipartisan bill that i helped to write. it never was voted on. the large new york banks prefer regulation and the corrupt arrangements of the current regulatory system. this permits them to negotiate circumvention of the rules that the fed writes and it meanizes competitors who are smaller than they. current costly regulation is one of the main reasons the number is small and medium-sized banks has declined greatly. and are now 5,300 medium small banks -- sorry, in 2000, there were 8,300. the small and medium sized banks are down 30%. now, those banks are important. important because they legend -- lend to local businesses that are starting up, to new companies that are starting up,
1:29 pm
and local regions where they don't have careful balance sheet and income statements. local banks do a lot of their lending on the basis of we knew your father and your grandfather and you come from a good family and therefore we're willing to lend you money. >> allan, a couple of minutes to get to your last point because we have a big onversation to continue. >> so briefly, the fed has now increased equity capital and that makes bank management much more concerned about risks and that's a good. and the principal stockholders reinforce the attention to risks. the banks incentive is to work for all kinds of risks. not just specific risks that the regulators guard against with. - against.
1:30 pm
administrative regulation, work what prevents costly excessive regulation of the kind that we see in the cfrb? nothing. we just had the metlife case, a courageous judge looked at the government's case and found it full of opinion and devoid of facts. to support the opinion, the judge called the government's case fatally flawed because of the absence of facts to support the government. wouldn't it be better to have a rule? i think so. is anyone in authority concerned that hundreds of medium-sized banks have closed. i believe that the father of the constitution, james madison, would be distressed at the constitutional violators of -- violations of the regulators. for example in cfrb, and i'll answer that in the question period. and thomas jefferson, alexander hamilton and john adams would oin in the protests.
1:31 pm
this is naked authoritarian government, more at home in the soviet union than in our country. which purports to observe the rule of law. finally professor conti-brown wants the u.s. president to have authority to fire the chairman of the froc. he would remove the reserve bank president as voting members on policy decisions and in other ways increased politization of the fed in the interest of what he believes would be greater accountability. i don't think he tries to support his case, i believe the way to greater accountability is to require the fed to adopt and follow a rule of its own choosing. that's the proposal that john taylor has made and which i have signed on to. greenspan showed by following -- more or less following the taylor rule, greenspan showed that he could get the best
1:32 pm
period for fed in its first 100-year history with low inflation, steady growth, short recessions, quick recoveries. that's what we want. that's what we should have and that would be a great improvement over what we have now. do we have any idea about how he fed will eliminate the $2.5 trillion worth of excess reserves on its balance sheet? there that cause inflation? recession? or both? no one knows because the fed is moving from day-to-day. the fed needs reform. discretionary judgment has given poor results, alternating parts of recession and improvement. the twist franc was worth 20 u.s. cents. and per capita income was a fraction of u.s. per capita income. now the swiss franc is worth
1:33 pm
more than a dollar, five times than what it was worth before. the more cautious, less inflationary, more rule like policies of switzerland. has it hurt switzerland? its per capita income is now larger than us. -- than ours. the lesson, i believe is, dregsary policy is costly and has cost our country. the best reform is a rule-based policy of moderation. that would benefit our economy and be a step toward greater exchange rate stability. dollar relanes the world's principal currency of monetary rule here would encourage others to make a similar commitment thereby stabilizing exchange rates and reducing economic uncertainty. thank you. \ >> thank you very much, allan. since we've blown through our time constraints. >> i won't blow through mine in his book we're discussing,
1:34 pm
peter has discussed a highly wide ranging but also very specific and detailed work of history and analysis. covering the remarkable institutional evolution, including intellectual evolution, the shifting of ideas, for a complex structure known as the federal reserve in a very complex environment. among the other provocative effects of this book on me are that i deep wond -- keep wondering what new ideas and theories the fed will be trying out on us 10 years from now? let's address this as peter did, and allan also. power. the fed has obviously come a long way since it was, as peter describes it, a backwater agency. that's hard to imagine now and peter told the wonderful story of how the fed wanted to sit in
1:35 pm
more prominent place in the statep eavent -- state event and wilson said that they could come in after the fire department. little did wilson know that the fed would one day become the global financial fire department and it would be the fire department. the fed has made and doubtless will continue to make mistakes. not all mistakes, but some mistakes. the power of the fed combined with its propensity for mistakes, which is natural when you're dealing with uncertainty makes it, in my opinion, the most dangerous financial institution in the world when it comes to the creation of systemic financial risk. put that together with the idea of independence. peter, rightly, i think, discusses a lot of factors
1:36 pm
which impinge on the tenets of the fed but to the extent the fed has meaningful independence combined with its power and the riskiness of its judgments and its actions, the bigger and institutional puzzle it represents and the more necessary is peter's second book, which he's working on. in the famous conclusion of john maynard keynes' general theory, it tells us that it is ideas which are dangerous for good or evil. i think this is especially true of the ideas which come to dom -- dominate the minds of central bankers. this is something we can't focus too much on. which ideas are dominating the minds of central bankers and how are those ideas move -- moving? of course the most important minds are those who lead the fed. and this is why, i think, peter's examination of the shifting ideas that have led
1:37 pm
the minds of the federal reserve is absolutely key. he tells us in the beginning to think that the fed would create fiat money was outrageous. were fighting words was the word of the book and carter glass has said nothing would be more ridiculous than to say the fed would create currency and today we are used to the idea that the fed is the leader of the worldwide fiat currency system. in discussing martin, peter has this line, the keeper of the currency is the one that has to enforce the commitment not to steal money through inflation. is the fed formally committed to perpetual inflation? these ideas change around. and as peter points out, it is not the case that there are objectively correct answers to he problems of monetary policy
1:38 pm
, and that they are formed with what we cannot unfairly call ideology. so peter observes in his book, central banking practice is plagued by uncertainty. modern failure, imperfect data. and central banker ideology. i tnt know about the even, peter. i would say central banker ideology. central bankers are adjudicating between conflicting claims, he writes, and conflicting views of that uncertainty. these failures, these ideologies. this may make us think of a great letter which was written to the financial times a year or two ago which said in mathematics there's one right answer. in literature, all answers are right and in economics no answer is right. because the uncertainty is to
1:39 pm
- so high, peter's word, "adjudicating" while it's arguable, might be replaced by the word "guessing" and i think there is a lot of guessing involved. i mean guessing by knowledgeable and intelligent people but guessing nonetheless. because uncertainty is high, the natural human reaction is to cluster your ideas, to come up with common ideas and reinforce each other's repetition of these ideas. now, peter discusses what he calls and others have called cognitive capture, but i think a more accurate description is cognitive hurting. cognitive hurting is the natural human reaction of all of as you to great uncertainty. we want to know what the people we respect are doing. and be doing the same things. there's so much in book it would be fun to talk about but the chairman has reminded me they have to move on along.
1:40 pm
so two more points. peter mentioned lots of etaphors and in a great part of the book he discusses martin chesney. martin, the longtime chairman and what he calls the poetry of central banking. referring to martin's love of metaphors, the most famous being the chaperon at the party and how martin became the fed's chief iteration. this was appropriate for a fed chairman who studied english literature and latin classics. it maybe thinks we need to change the line on keynes' a little bit to say sooner or later, it is metaphors that are dangerous for good or evil. i think there's a lot of truth in that. the last point is peter's suggestions that aspects of the
1:41 pm
fed are arguably unconstitutional. i recommend his discussion of that for your consideration. but to me it comes down to an even more general point. and allan touched on this in his remarks. of the fed and its relationship to the elected branches, to the executive, which would like to get its deficit budget financed and to the legislative representatives of the eople. peter quotes bernanke has telling janet yellen you have to remember that congress is our boss but i wonder if the fed really believes that. or do they want it to be that congress is their boss? that's what, as allan said, the constitution says. and i would just add that the more it is true that the fed has independence from the elected branches and the congress in particular, the more intriguingly alien its
1:42 pm
structure is to the fundamental constitutional order. and in the opposite case, the less independent it is the more congenial it is to the fundamental order of checks and alances. every generation wants to reform things and reform the fed among them and peter, thanks for writing such an interesting book to let us think about this i think you are bound to be testifying at the hearings for the federal research reform act of 2020-something. thank you. >> thank you very much. \ [applause] >> and to be fair, i think that kind of might be in peter's book the answer to the question i presented to you with. to the extent that we have accomplished an independent fed than -- then we've designed something that was perhaps not something that was envisioned by the founders.
1:43 pm
so it's almost like an impossibility to wade in there and do anything that would be constitutional. with that, we can open it up to questions and answers from the floor. if you could please wait for the microphone so that the tv audience could hear you as well, and please try to make your question in the form of a question rather than a statement because we are going to want to get as many uestions in as we can. i'll start over here. >> thank you very much. first and foremost for the books and for everything. today we talk of the idea of the independents and we see the money printing happening. we on a gold standard. we've had problems about growth but we've never had growth. as the federal reserve's balance sheet increase, the federal remittance increases to the treasury. not only do we have more printing. the "wall street journal" reported that 19 billion in the reserve account was taken by the treasury. now it's $1127 billion in
1:44 pm
remittances. when we look globally, the swiss, who the swiss franc is basically -- the dollar lost 80% of its value since they left gold. now we've left gold printing money. will this stop in once we see this historically it never stops. what are your thoughts on that? it seems more and more money is being printed and it becomes an essential part of the budget. it's almost half of interest expense right now. >> peter writes about that in the book. >> something interesting to think about is there's nothing within the federal reserve act that dictates those remittances. in fact, the fed's vaunted budgetary autonomy and wonder what meltzer makes of this -- is without parallel anywhere else in the administrative state. not only is the fed not subject to appropriations, but it literally creates the money with which it funds itself. i'm untroubled by this but constitutionally and as a
1:45 pm
matter of policy, i think this is a place where an ability to maintain an insulated monetary policy is most effective. if the fed is subject to the appropriations process each year then there ends the fed's ability -- >> the original design -- was it charged a fee. >> the original design, exactly. spent a chapter on this charging a fee to the member banks for the services the fed provides, including clearing of checks and that kind of thing. it still charges those fees. that accounts for 25% of the fed's budget. one idea would be to shrink it down so the fed is only 1/4 of what it is today. an intriguing proposal but it's important to keep in mind the -- is that that very change. the elimination of the gold standard, the elimination of the doctrine, and the
1:46 pm
elimination of reserve bank autonomy has meant that the fed has grown not by legislation but by tradition into the model we have today. its remittances back to the treasury were a defensive preemptive move to keep that budgetary autonomy. there is nothing that says it must continue. in terms of what could happen in the future, that's why these kinds of things matter so much, elections, personnel, because these traditions can change that course. >> they would be just as justified if they gave the money to me? >> there's nothing in the federal reserve act that says kevin can't -- i think a lot of people would sue if that appened. >> we'll do a little ping-pong to the next fellow and then we'll look again. >> hello, this should be a pretty easy one for you. earlier you mentioned that donald trump might have a problem with certain policies, i suppose that janet yellen has
1:47 pm
enforced or i assume created. so can you talk a little bit more about the contradicting between whether donald trump presidency would accept ms. yellen or would have a problem and dismiss her? >> donald trump is an enigma to me. if you have better insight to him from a pol perspective i would be interested. i've read a lot and i'm not closer to understanding what his monetary politics are. he praises yellen and the yellen fed not in so many worlds but for low interest environment. the thing i fear about a trump add m., why it looks so different from anything else we have seen in history, is the donald trump has identified himself as someone who is linking short-term economic results with his own political successes. he seeks to consolidate power. he's the boss. so the idea that a central bank
1:48 pm
would pursue a policy that is antithetical to short-term economic interests would seem to be an anathema to a trump administration. it's not clear to me that he sees anything as the fed as anything other than a kind of piggy bank. just an hour before we came on i was reading a headline that said there's no such thing as a u.s. default because we can print our way out. that's called hype he -- called hyper inflation. that's what's so uncomfortable about a trump administration. that looks to me like someone who would shoot a sham roan who tried to pull the punch bowl away before allowing that to occur. >> i have a short comment. i don't think anybody knows what a trump administration is going to be like. i thought that donald trump figured out a very clever, unique way to win the
1:49 pm
primaries, without spending much money. you say something extreme every day and all the journals rush to interview you. so he had more tv time than anybody else could afford to buy and that was a great inning strategy. and now one hopes that now that he is going to be the nominee, we'll see what he actually is going to say about what he's going to do. i don't think you can make any judgment on the basis of what he did because those were all statements designed to get himself on tv and be interviewed. >> allan, who better than you, leading historian for the fed -- is it ever the case that some president said, darn it, i want to fire the fed chairman and then someone said no, no, no you can't because of this legal technicality or something like
1:50 pm
that. did that conversation ever happen? >> apparently kennedy wanted to fire martin but didn't have the -- wasn't willing to carry through on it. 'm sure that -- i'm pretty sure that nixon offered martin, who had one more year as chairman -- he offered him a job in the treasury or something in order to get burns into the fed and martin told him. no. tees not without president. >> l.b.j. commissioned an formal opinion to see whether he could fire martin after martin raised the discount rate contrary to his wishes. and it was the ambiguity identified who say it's not worth it. >> when you tell them you can't, they say you do it will
1:51 pm
be litigated. >> right. >> party, when you describe the trump theory of the fiscal role of the fed, i thought you were describing lyndon johnson. forcing out truman forced out the chairman of the fed because he wanted to replace him with william martin who he thought was his man. and disappointed him. truman thought he was a traitor. that's more to the point, i think. >> at that point the term was almost up. >> time for a few more questions. somebody in the back, somebody over here, and a lady in front. and person in the back. you'll get the last question in the back left. back there. >> peter, congratulations on a great book. you have done a real service to us. no one's mentioned the figure i think at least a pretty good analogy to trump, andrew jackson. andrew jackson and the war on the second bank of the united
1:52 pm
states, i think trump, who is, i think, -- who has, presented, himself as the anti-elite candidate. the candidate of the hinterlands, the great forgotten people out in the wilderness, and certainly jackson played that role very adeptly. and took on elite financial power. centered in the second bank of the united states, which was our central bank. do you see a potential battle similar to that? >> i see echos of jackson and thomas jefferson, too, and flange, abraham lincoln. i'm choking as i say this and donald trump in the sense that he's seeking to say, i'm a frontiersman, a man of the people. there is nothing about his biography that authenticates that blame claim, unlike -- not so much thomas jefferson but andrew jackson and abraham lincoln. the difference, though, and the reason i don't think that we an see in trump a thorough
1:53 pm
pred populous, is there is know governing principlal. before a week ago i had no idea at all what his views were on something as important as the central bank. i couldn't say the same thing about any of the other republican candidates. that's the thing i think is so interesting. it's not about populism against the interests with the donald trump because there are so many different frequency contradictory veins within what trump has articulated. >> question number two is over here if i remember correctly. and we are running a little late. if you could make the question brief. >> very simple question. what role should financial stability play in setting monetary policy? >> i have been hogging the good questions. >> you're the author, peter.
1:54 pm
>> i believe the fed should not be in the financial stability business. i believe that we have the fdic, and i think that should be sufficient. so we should strengthen the fdic and take the fed out. the reason for that is because it creates conflicts for them. multipurpose agencies generally don't do a good job. the best job gets done if you concentrate their mind on the task that they are supposed to carry out. for the fed, that's clearly monetary policy. >> quk point from alex. >> the original purpose of the fed in creating a so-called eless particular currency was financial stability -- elastic currency was financial stability. at the time of the foundation of the fed there were forecasts there would no longer be any financial crises or cycle once we had the fed, obviously a
1:55 pm
very poor forecast. >> the best forecast we have ever had it turns out. they are all so bad. on the point of regulation, when i wrote about your book, it seemed to be reading your history that economists who think about independence are thinking about using monetary policy to get the economy humming in an election year. they don't want that to happen. and that it looks to me like federal reserve chairmen have traded regulation and that -- in that greenspan had this exchange you write about where it was saying this housing lend something getting out of control, but we had a congress that wanted more housing lending. it looks like the fed didn't want to step up and regulate to stop it because they thought if they do that they might lose the independence they care about. i concluded that your book says we ought to separate regulation from monetary policy completely. >> here, here. >> because the regulation was
1:56 pm
so political. do you agree? >> i don't go that far. i would love to see that institutional question come to a livelyier debate. there is no question that governance gets muddled the more functions we add to a single institution. which is why i'm surprised that professor melzer is not in favor of separating it out. >> he would eliminate it. we have question number three right here. >> thank you. thank you for your presentation. just try to think about fed, the purpose, for improving economy, inflation, and for whatever reason. why don't they regulate? when you want to have economic good, you got to regulate it, financial institution. and there's no real -- doing
1:57 pm
disservice for community. and the interest rate, for a financial institution, is so much gap between the charge to the consumer or the student loan. it doesn't make sense is the estruction of fair market. and also against the common sense that the finance igs constitution -- financial institution, coming from the onsumers or account holders. but they are earning revenue. they are penalizing consumers. >> could you come to your question. >> my question, can we ask the fed to really do their responsibility to do something to promote economy and reduce inflation rather than doing the opposite direction? >> this highlights a place
1:58 pm
where allan an i agree strongly and a place where we disagree. don't think rule making is inconstitutional. and so i think that it is appropriate for the fed to have regulatory authority over the missions that the congress has laid at its feet. that's a place where dewee disagree. a place where we agree to the extent we can keep those regulations as dumb and stupid and simple as possible, and here in fr the financial stability perspective, the example here is just jacking up the required levels of equity for very large banks, is a clean, simple mechanism that has bipartisan enthusiasm missing from that coalition is the banks themselves. so that's a place where i think it's appropriate. >> let's move for the last question to the back in the ack.
1:59 pm
>> thank you very much. very interesting discussion. my question is just about finance in general. it's my understanding that since the charter of the federal reserve that finance has changed and grown dramatically in terms of technology and the size, even probably in the last 30 years. i was wondering if you could discuss that briefly, but have we reached some sort of peak of finance? has it been exponential for the last while and will slow down? maybe the role of the fed will also slow down and the changes there? just about the interaction between the growth of finance and the fed. thank you. >> the financial theory on this, which is a very mathematical literature, is clear on this. to have an efficient system -- >> we'll leave the last two minutes of this discussion, but we do have it up online at c-span.org. in our video lie brarery. take you live to the floor of
2:00 pm
the house for one-minute speeches. work today on opioid addiction, drug trafficking, and law enforcement. the speaker pro tempore: the house will be in order. the prayer will be offered by the chaplain, father con you. -- conroy. chaplain conroy: let us pray. almighty and merciful god we give you thanks for giving us another day. you are the shepherd of souls. during the 114th congressmark guest chaplains have led the house in prayer. today we wish to lift up these leaders and their faith communities across this country. their prayer for this nation and this government lingers in this room. bless themr

26 Views

info Stream Only

Uploaded by TV Archive on