George Will

Rep. Paul Ryan, R-Wisc., has, as usual, a better idea: Repeal the Humphrey-Hawkins Full Employment Act of 1978 that, he says, "dangerously diverted the Fed from its most important job: price stability." For 65 years after its creation in 1913, the Fed's principal duty was to preserve the currency as a store of value by preventing inflation from undermining price stability. Humphrey-Hawkins gave it the second duty of superintending economic growth.

Before the recent downward tick in unemployment from 10.2 percent to 10 percent, Democrats said: The absence of downward movement proves the urgent need for more stimulus spending. After the downward tick they said: The improvement proves the urgent need for more stimulus spending lest the momentum stall. For such people, "more spending" is a verbal tic. Let such people begin managing the Fed and they will mandate low interest rates, regardless of circumstances. The currency will fail as a store of value.

Is the Fed's independence (de facto, not de jure) "undemocratic"? Somewhat. So what?

America is committed to democracy -- and to circumscribing democracy's scope in order to minimize the damage it can do by improvident responsiveness to untempered gusts of public passion. Thus the government is replete with restraining mechanisms -- three branches of government, rival chambers of the legislative branch, vetoes, supermajority requirements, judicial review, etc. And there are extraconstitutional circumscriptions of democracy, such as allowing the Fed an independence that exists at the sufferance of Congress.

If Time magazine has a lick of sense, Bernanke will be its Person of the Year because his leading role in stabilizing the financial system enabled the president to pursue other objectives. He did not do it perfectly, but he prevented paralysis.

On Monday, he reminded his Economic Club listeners of John Maynard Keynes' words that "economists could manage to get themselves thought of as humble, competent people on a level with dentists." But humble people do not claim -- as Bernanke does, under Congress' mandate -- the competence to simultaneously produce, with "adroit" policies, price stability and full employment.

Like the Fed, dentists are always important and urgently desired when pain is intense. But they are rarely objects of their patients' affections.


George Will

George F. Will is a 1976 Pulitzer Prize winner whose columns are syndicated in more than 400 magazines and newspapers worldwide.
 
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