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The Federal Reserve

Floor Speech

Location: Washington, DC


Mr. FRANK of Massachusetts. Thank you, Mr. Speaker.

I intend to talk about the Federal Reserve, but preliminarily, having listened to my colleague from Texas, I did want to note a little bit of a dissent.

He cited Queen Isabella of Spain and King James of England for having decided what kind of country we should be. Now, the question of the religious nature or not is obviously a legitimate one to debate, but I was a little surprised to be told that I was to be in any way bound by what Queen Isabella or what King James said hundreds of years ago. I thought one of the purposes of the American Revolution was to tell European monarchs that we would here in America make our own choices.

But I want to talk today about the Federal Reserve and particularly, frankly, about my disappointment in a debate, I guess, I've been having--it's been kind of one-sided because he's never spoken to me--with Mr. George Will.

I know it's common advice to Members of Congress and to other political leaders not to get into an argument with the people in the media. I think that's a great mistake. I think that respect for openness and democracy should make this a two-way street and that the notion that responding to criticism in the media that's inaccurate is somehow inappropriate or hypersensitive is a great mistake. What I would have looked forward to was a debate, with probably Mr. Will and others, about the Federal Reserve.

I did file legislation last April to change the structure of the Federal Reserve's Open Market Committee, which votes to set interest rates to the extent that we can, and it now consists of the seven appointees to the Federal Reserve Board of Governors who are appointed by the President and confirmed by the Senate--people selected in that democratic way but with 14-year terms to guarantee some independence. They are Presidentially appointed and confirmed by the Senate, but they serve for 14 years so that there is not, presumably, the chance for one President to get everybody. There are built in some staggered terms there.

But there are also five votes that are cast by regional presidents at the Federal Reserve Bank. These five people--it's on a rotating basis. The New York president always gets it. Four others out of the remaining ones go on periodically. These are people helping setting the most important public policy in America: monetary policy, interest rates.

But they come with nothing remotely resembling public participation in the process. They are selected by the Federal Reserve boards of directors, which they in turn have largely selected; and those boards, not surprisingly it's the Federal Reserve regional system, are marginally people, more than anyone else, in the financial community.

Now it's very important for people in the financial community to be represented, and I am very glad that the regional presidents come to the meetings and should be allowed to speak, be encouraged to speak. But having people who are appointed by bankers, who then appoint new bankers to appoint new people, be 5 of the 12 votes in setting monetary policy I believe violates democratic norms.

I think it also gives a bias against the mandate the Congress has given the Federal Reserve--it's not been changed--to worry equally about inflation and unemployment, because, and the record shows this, the regional bank presidents tend to be concerned more, on the whole, about inflation than an appointment. They don't regard the two as equal. That's not surprising given whom they represent. That's a legitimate argument for debate. And I filed legislation last April to leave the regional presidents in the position of speaking but not voting.

Mr. Will differed with that, and I look forward to a debate. Mr. Will does not agree with Mr. Bernanke's policy of trying to respond to our economic troubles by increasing the availability of money, the quantitative easing. Mr. Will is apparently on the side of people who have been proven to be quite wrong factually that this is going to lead to inflation.

Mr. Bernanke's policies have, in fact, I think helped alleviate the crisis--although not doing as much as we would like, because there are limits to what monetary policy could do. Contrary to predictions, they are not costing the Federal Government money; they haven't led to inflation. I would be glad to debate that with Mr. Will. But instead he engages in a kind of snarkiness that I found unbecoming. I had thought Mr. Will to be someone who was committed to intellectual debate, but that simply wasn't there in his approach.

Let me say, and I will document this, that his response in his column, and then in a follow-up column, basically seemed to me to be a sad combination of blatant factual inaccuracy, of logical confusion, and, sadly, I must say, of intellectual dishonesty, and, finally, great inconsistency.

Let me begin with the factual inaccuracies.

Mr. Will's thesis in this column is that I filed that bill largely because I did not agree with a vote last summer of the Federal Reserve open market committee, 7-3, in favor of Mr. Bernanke's policy. And it's true, I differed with those three. I agreed with the policy of the seven of the three, and I differed with the three. And here's what he says:

``Frank says he has `long been troubled' from a `theoretical democratic standpoint' by the `anomaly' of important decisions affecting national economic policy being made by persons `selected with absolutely no public scrutiny or confirmation.' ''

That's absolutely right. I do think there is a shocking lack of respect for democracy when we are talking about fundamental powers given to people who are neither elected nor appointed and confirmed by other elected officials but are selected by a small, self-perpetuating group of people who want particular economic segments. I'm ready to debate that.

But here's what Mr. Will suggests, basically, that I was not really bothered by that. I notice that he is sort of denigrating my formulation here because what he says is, ``It was not, however, until August that this affront to Frank's democratic sensibilities became so intolerable that he proposed a legislative remedy.'' Such snarkiness about democratic sensibilities that seem to be unbecoming to Mr. Will. But here's his fundamental point: That while I said I was troubled because we shouldn't be giving a self-selected group of private citizens of a particular economic interest governmental power, that that was sort of a cover, he's suggesting, because they didn't do anything about it until August when the vote had taken place.

There's one problem with that, Mr. Speaker. I did it in April, not August. The bill had been filed in April and I publicized it in April. It is true that in August I put out a statement noting that this 7-3 vote was an indication of what I thought was a result of having this undemocratic element. But Mr. Will's fundamental refutation of my position was that I wasn't really concerned about democracy and public participation or having a kind of guild socialism that I would have thought he would have been opposed to, of having the guild of bankers be the ones who set public policy for the banks. He said it wasn't until August that I did this, but I did it in April, and he was flatly wrong.

Now, he didn't know that I did it in April instead of August because he didn't talk to me. He didn't think it was necessary, given his lofty philosophical position, to do any fact checking, and he was simply wrong. And he was not just wrong about it being April instead of August, which is not a minor error. It's fundamental.

By the way, I said ``intellectual dishonesty.'' Let me explain what I meant by that.

I wrote a letter to The Washington Post pointing out that while April and August both start with ``A,'' they are, in fact, several months apart, and it was kind of hard to argue that I did something in April because I knew what was going to be happening the following August. So he was simply wrong, and that was central to his argument.

Here was his acknowledgment of error. It's a

correction note to a recent column, and he says, ``In a recent column, I suggested that Representative Barney Frank's legislation to reform the Federal Open Market Committee was introduced in August, when in fact it was introduced in April.'' He suggested it. Here's how he apparently suggests things.

Quote, It was not until August that he proposed a legislative remedy.

It's doesn't sound like he said I suggested. He said I said it. But even more important, the fact that it was April and not August was a central flaw in his argument. He doesn't acknowledge that in his, I think, intellectually dishonest correction. He says, oh, I suggested August when it was really April, as if that was kind of almost an incidental error. But it wasn't an incidental error. It was fundamental to his misreading of my motives.

What was also an inaccuracy was his beginning the column by saying, ``Fond of diversity in everything but thought, a certain kind of liberal favors mandatory harmony (e.g., campus speech codes).''

In other words, he began, that's when he led to saying I did this in August because I was so upset about this vote, that that's the only reason I did it, not because of any concern about democratic input. He, here, is saying that this was an indication of me as one of those liberals who is opposed to free debate, and I'm for campus speech codes.

Well, in fact, you couldn't be more wrong on that one either. I've have been one of the Members of this House, I'm proud to say, most supportive of free speech. I have specifically opposed campus speech codes.

Again, this looks clearly as if this is just an example of the kind of mentality that leads meetings for campus speech codes. I have spoken against them. I have said that I do not think that the concept of hate speech is a reasonable one as far as the law is concerned. People can call it anything they want, hate speech, but, no, there shouldn't be any restrictions on it. There shouldn't be any laws against it.

I am very proud, along with my colleague from Texas Mr. Paul and our departed colleague Mr. Wu, we voted against legislation that would have prevented one of the great ranting homophobes of our time, the Reverend Fred Phelps, from holding up vicious and obnoxious signs at the cemeteries of men and women killed in war as long as he did them so that he wasn't right in the cemetery grounds. We thought there was a free speech problem with this, and the Supreme Court agreed with us.

So Mr. Will is just again factually inaccurate and accusing me of being one of those people who is for stopping dissent. Once again, if he'd asked me about it, I would have told him, no, I have a record of opposing campus speech codes and that had nothing to do, disagreement with dissent had nothing to do with my position here.

And that leads me to his logical confusion. Those are his two great factual errors: his misdescription of me as being someone who is for campus speech codes and for curtailing speech, and his deciding that I did it in August when I did it in April, which invalidates his central thesis about my motive.

But even more shocking for me was this fundamental, logical confusion from Mr. Will, who, I had frankly expected better of in this context.

He conflates two very separate points. He says this is an example of my not supporting diversity of speech. I am totally for diversity of speech. This is not a case of free speech or diverse expression of opinions. This is a case of exercising government power.

I did not say that Federal regional presidents shouldn't be allowed to talk about Federal Reserve monetary policy or anything else. There was no restriction on their speech. The bill says that they shouldn't be given a vote on public policy.

I am frankly very surprised, as I said, that Mr. Will confuses the two and tries to denigrate my move to keep them from voting to make public policy as an example of being opposed to free speech. This is really quite surprising and an example, I think, of his just deciding he was going to use any argument that he could against it.

As a matter of fact, the Federal Reserve presidents are all invited to the meetings and can speak, even those who don't vote. And I'm all for that. And so this notion that this is somehow an example of liberal opposition of free speech, when I am someone who has a very good record on free speech, and when I am not in any way impinging on their right to speak, is a further disappointment.

Mr. Will clearly disagrees with the policies that Ben Bernanke is following. In the column, he suggests that my concern for protecting both sides of the Federal Reserve's mandate, unemployment and inflation, is misguided. He doesn't say that exactly, but he says, ``The actual language of the mandate speaks of promoting `maximum employment,' which is problematic: `Maximum' means `the highest attainable,' and this might depend on ignoring the other half of the mandate.''

So he's sort of justifying people ignoring the employment mandate by saying the only way you can support it is to ignore the other half. That's not true. That's not supported by the record. That's not supported by logical analysis.

I'm prepared to debate with Mr. Will whether or not we should do what I think he really wants to do, which is go to a single mandate on inflation. A number of my conservative colleagues want to do that here and amend what we call the Humphrey-Hawkins Act, and do away with the Fed's concern about unemployment. I think that would be a great mistake.

I admire Mr. Bernanke because he has preached to us about the dangers of unemployment. He has pointed out that a decision to cut the budget very quickly right now rather than defer that for a later time in a 10-year period exacerbates the unemployment. He has called it a headwind for the economy. I welcome the fact that Mr. Bernanke, a George Bush appointee originally, has been so diligent in worrying both about inflation and about unemployment. And as Mr. Bernanke has pointed out, we have in fact been more successful in holding down inflation than in combating unemployment, and that I think is an appropriate thing. Again, I would be willing to debate that with Mr. Will.

But the tactics he uses of trying to denigrate my motives and falsely imputing to me an opposition of free speech, as I said is, I think, disappointing. I would have preferred to talk about this on the merits.

Mr. Will also is sneering in his reference to ``cheap money.'' He talks about Mr. Bernanke's policy about ``cheap money.'' That's, of course, one of these pejorative ways of talking about something that you disagree with. In fact, cheap money suggests that you are devaluing the currency. That hasn't been the case. I am prepared to debate, as I said, whether or not what Mr. Bernanke has done in quantitative easing has been good or bad. I think it has been good, and those who have been critical of it have been proven wrong factually. It hasn't cost the government money, and it hasn't led to inflation. But Mr. Will won't do that. It is, again, falsely setting up this notion in which I am an opponent of free speech, and that's why in August I decided to do this. I have been a great supporter of free speech. I did it in April and not August, and this isn't about free speech; this is about public policy.

And as I read the column in which Mr. Will wholly inadequately acknowledged his mistake by treating it as if it were almost a clerical error that he said August instead of April, I reread the column, and it struck me what a terrible inconsistency it is. This is a column in which he is attacking Elizabeth Warren. And he criticizes Ms. Warren on no basis factually once again, and I don't think he has had much to do with her as I read this caricature of her, but he says in here: Many members of the liberal intelligentsia agree that other Americans comprise a malleable, hence vulnerable, herd. Therefore, the herd needs kindly, paternal supervision by a cohort of protective herders. And he says because such tutelary government must presume the public's incompetence, it owes minimal deference to people's preferences. This convenient theory licenses the enlightened vanguard, the political class, to exercise maximum discretion in wielding the powers of the regulatory state.

Mr. Speaker, he has just described the practice whereby bankers get to pick Federal Reserve presidents to vote on the open market committee. I don't know many people who believe that. That's Mr. Will's defense, in effect, and the point is this: he writes one column criticizing me, sneering in a way, at my objection to there being banker-selected votes on the open market committee on the grounds, among others, that this is, in my judgment, a violation of democratic norms. That's clearly not my real reason, and it's almost as if he understands why anyone would think that. In fact, here's Mr. Will, who on the one hand says these preferences are not really theirs. This convenient theory licenses the enlightened vanguard, the political class, to exercise maximum discretion. And it says that the public should not be able to do this.

So here's Mr. Will denigrating and attributing to liberals this notion that an enlightened vanguard ought to make the decisions as opposed to the public. That's what he says we think.

Here is Mr. Will in defense of the system by which it happens that I'm trying to change: Heavy representation of the economy's financial sector in the governance of the Central Bank does not seem bizarre. Oh, yeah, I think it is in the governance. In the discussion and the input of policy. So Mr. Will is critical of me because I did not think that the banks ought to be picking the people who vote on policy that is so central to the banks. That's his position when it comes to the Federal Reserve. But when he gets a chance to attack Elizabeth Warren unfairly, he takes exactly the opposite position. On the one hand, he is defending a kind of corporatist--I said the socialist, but it is kind of a corporatist position that, as he says, means ``heavy representation of the economy's financial sector in the governance of the Central Bank''--he's for that, as opposed to my view that nobody should be voting on monetary policy who hasn't either been elected or appointed by people who are elected, preferably as I propose, not those directly elected, but with 14-year terms so you get the independents.

So I'm for a system in which, if you're going to vote on monetary policy, and if you're going to regulate the
banking system, you have this ultimate democratic input. He says no, let's have heavy representation of the economy's financial sector in the governance of the Central Bank. But then when it comes to, I don't know, consumer protection, he is accusing liberals of being the ones who are against the preferences of the public. He says, we, the liberals, believe that we owe minimal deference to people's preferences and instead governance should be from an enlightened vanguard. Well, the enlightened vanguard, in the case of the Federal Reserve, are the bankers.

So to make his particular substantive conservative point, Mr. Will is very flexible in his argument. I wish he would have simply said this: that he does not think--because I think this is what he believes, it sort of comes out here--that he doesn't think we should have the Federal Reserve equally concerned with employment and inflation. A number of conservatives think that. I think that's wrong. I think Ben Bernanke has been very helpful in doing both. I think that's been shown. The argument is that if you worry about employment, you'll sacrifice anti-inflation. In fact, it's the other way around. It's not a sacrifice, but we've been more successful in fighting inflation than with regard to employment. But that's a debatable issue.

Whether or not, given even in monetary policy you should have quantitative easing, whether in a time of severe economic slowdown the monetary policy ought to be eased, Mr. Will thinks that's ``cheap money,'' and he sides with the three Federal Reserve presidents, apparently, who inaccurately predicted it would be inflationary. Again, those are legitimate policy decisions, but that's not what Mr. Will has done.

He has, just to summarize, inaccurately described my position as that of a liberal who is against free speech. I'm not. I have a record of which I am proud in defending free speech.

Free speech means, by the way, you defend the right of obnoxious people to say hateful things. Because if you're not an obnoxious person and say hateful things in this country, you don't try to shut them up. I do believe that free speech means that people should be able to do that. People should be able to say offensive things. And I've got a record of supporting it.

But he claims that it's because I don't like dissent in the sense of free speech that in August, after a certain number of votes on the Federal Open Market Committee, I introduced my bill. So he's wrong about my views on free speech. He's wrong. I did it in April instead of August. And he was forced to acknowledge that--it was such a blatant factual error--not by saying, oh, I made a mistake by making this assumption of his motives because I thought he did it in August, but simply throwing it off as if it was kind of a clerical error.

Then, in the whole article he confuses free speech with government policymaking power. I am very much in favor of free speech. Everyone has a right in this country to unrestrained speech. Everyone does not have a right to exercise governmental power. To me, governmental power should be rooted in the democratic system.

Mr. Will disagrees with that with regard to the Federal Reserve because he wants bankers--he thinks it's fine for bankers to have that great role in government; but when he comes to attacking the liberalism in general, he suddenly reverts to the opposite position and he denigrates those who aren't ready to respect the people's preferences and is critical of those who want an enlightened vanguard to go forward.

I should add that he's not the only defender there who, sadly, to me, won't stand with legitimate arguments. There is a former Federal Reserve Governor Frederic Mishkin, who was very critical of my position that the regional president of the Federal Reserve ought to be able to speak on policy but not vote on it. What he says is, among other things, that this will cause a loss of prestige for the Federal Reserve system and you won't get good people to be there.

I am shocked at Mr. Mishkin's denigration of people in the Federal Reserve. He describes being the president of a regional Federal Reserve bank is a very important job with significant regulatory power, none of which I would diminish.

Then he says because they couldn't vote every couple of years on the Open Market Committee, it wouldn't have enough prestige for him to serve. He cheapens them, it seems to me. He also claims that I'm trying to undermine independence and subject them to short-term considerations.

I want to stress again, the people in whose hands I would leave monetary policy are appointed by a President, confirmed by the Senate--hardly an easy process, as we know, these days--and then appointed for a 14-year term. So these are not people who are subject to short-term whims. Of course, a 14-year term goes over three Presidential terms.

We then have Mr. Fisher, one of the regional presidents, who in a particularly arrogant way, here's what he has to say. We are being attacked--we, the Federal Reserve--from the right and from the left, and I don't see much difference between a certain Congressman from Texas named Ron Paul and a certain Congressman from Massachusetts named Barney Frank.

Well, the whole language, he doesn't see any difference between myself and Ron Paul.

Mr. Paul and I worked together on a number of things. We both think we are way overextended militarily, that we should be bringing the troops home from Afghanistan and Iraq. We both opposed restrictions on free speech and we think that people ought to be gambling with their own money on the Internet. But we disagree fundamentally on economic policy. We disagree on the Federal Reserve. I have been in favor of quantitative easing. Mr. Paul has been against it. Those are legitimate issues for debate.

But you get this smearing, a certain Congressman here and a certain Congressman there, and he doesn't see any difference. If this man really can't see any difference between the positions of myself and Ron Paul on economic matters, then he's hardly competent to be doing anything, much less voting on Open Market Committee policy.

Once again, what we get is a refusal to debate the merits. And there are debates to be had. Should we have an equal concern at the Federal Reserve with unemployment and with inflation? I think we should. Has the policy of Mr. Bernanke, supported by many others from appointees of both Presidents and some Federal Reserve regional presidents, to increase the money supply in the face of this terrible slowdown that we've been dealing with, has that been a good thing or a bad thing? I think it's been a good thing. That's debatable. But they won't debate it.

Instead, we get this collection of illogic, of inconsistency, and of factual error rallying around the notion of the Federal Reserve system as being unassailable. Well, too many people made that mistake when Mr. Greenspan was in charge, and we should not be making it again.

Mr. Speaker, I will continue to press forward. And I hope on the part of those on the other side we can now debate whether or not it's appropriate in a democracy for us to do as Mr. Will proposes and to give the financial community such an important role in the governance of their own industry or whether we should go for a more appropriately democratic one; whether Mr. Bernanke's policy has been good for the economy in terms of quantitative easing; and whether or not we should abolish the mandate of the Federal Reserve to care equally about unemployment and inflation. I look forward to debate those, but I hope in better terms.


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