Ben Bernanke, chair of the Federal Reserve, has 'warned' Congress that 'fiscal stimulus packages,' meaning social spending and tax policies to increase purchasing power, will not be a long-term solution to the 'credit crisis.' Rather, he has suggested that more extensive bank bailouts may be necessary.
Bernanke wasn't opposing the present bailout with his remarks, but it is or should be obvious that he is still thinking in terms of reviving the financial system that he inherited from Alan Greenspan. Notably, Bernanke failed to talk about serious new regulation of the financial services industry or any serious connection between finance capital 'bailouts' and the job and income security except 'old time trickle down religion' which was good enough for Coolidge and Hoover, Reagan, Clinton, and the two Bush presidents.
Congress should write a new national banking act that makes the chair of the Federal Reserve directly accountable to Congress and the President and gives the President with the consent of Congress the right to remove Federal Reserve chairs. It is also time to have the Federal Reserve work in concert with the Treasury and the federal government as a whole as part of a national economic program.
The 'monetarism' most associated with the late Milton Friedman and carried forward by Alan Greenspan in his tenure as chair of the Federal Reserve has failed completely. While this is a point that President-elect Obama made during the campaign – without specifically mentioning monetarism or Friedman – monetary policy in conjunction with fiscal policy remains important in both containing the economic crisis and developing a healthy national economy based on higher real wages, greater overall labor skill, and greater income inequality, not mountains of debt and deepening income inequality which has characterized the last 30 years of economic policy.
The Obama administration is hitting the ground running by focusing on the economic crisis and preparing to deal with it in the first days in office. This compares favorably with Bill Clinton, who began his administration as if he had a hangover, half-heartedly and unsuccessfully advocating a modest fiscal stimulus package. Clinton then went on to one domestic policy disaster after another, seeking to win over the Republican opposition who handed him his lunch while he alienated the progressive mass constituencies of his party.
But Obama has a much taller order than just being more progressive and more politically skillful than Bill Clinton or Jimmy Carter. Large numbers of Americans, and not just older Americans, expect him to be another Franklin Roosevelt, an agent of major, progressive change toward a new age of social-economic reform that will make future generations of Americans remember Ronald Reagan and George W. Bush the way Calvin Coolidge and Herbert Hoover were remembered after World War II, as relics of a discredited period of history.
Obama, like Roosevelt, has talked about 'action and action now.' He should start next week, both with fiscal policies to confront the economic crisis, policies to protect workers and homeowners and regulate the way that the banks use the billions that they are getting. But new policies that change the Federal Reserve system are also needed to demote the chair of the Federal Reserve from the position of second most powerful 'public official' in the US and bring to an end the fact that this position has no serious accountability to Congress, the President or the people
