A lonely voice against the Fed now leads a chorus By Tomoeh Murakami Tse
- Washington Post Staff Writer - Tuesday, December 8, 2009
Rep.
Ron Paul's attempt to rein in central bank is finally close
to passing -- just don't expect him to vote for it.
Ron Paul is used to going it alone. During
20 years in Washington, the libertarian Republican congressman
from Texas has proposed doing away with personal income taxes,
federal antitrust laws and the minimum wage. He's advocated
pulling the United States out of the United Nations, NATO
and the International Monetary Fund.
Those efforts have mostly been legislative
non-starters. Many of his bills fail to attract a single co-sponsor.
But one of his perennial causes is headed to the House floor
Wednesday with widespread support: to audit the Federal Reserve.
That measure, which he first introduced in 1983, has the backing
of more than 300 legislators and last month won bipartisan
approval in the House Financial Services Committee.
The proposal would subject the Fed to unprecedented scrutiny
by allowing the Government Accountability Office to audit
all central bank operations, including its decisions on interest
rates, lending to individual banks and transactions with foreign
central banks. Fed officials and many private economists have
argued strenuously against the measure, saying it would threaten
economic stability by undermining the central bank's independence
from political pressure.
"I'd like to know who they bail out and why," said
Paul, who brought together a small cult following across the
political spectrum in the last presidential election. "I'd
like to know how much they pay for securities that they buy.
Did they overpay? Why did Goldman Sachs come out well and
Lehman Brothers go bankrupt?"
Author of 'End the Fed'
That Paul's proposal has garnered so much support despite
opposition from the Obama administration is not so much a
testament to his political prowess. Rather, it reflects populist
discontent over an institution increasingly blamed for its
failure to head off the financial crisis and for its role
in rescuing large financial firms that helped cause it.
"He's been dogged about it and stayed with it,"
said Steve H. Hanke, an economics professor at Johns Hopkins
University. "The lesson in salesmanship is illustrated
by Paul's actions. However, the consuming public is obviously
ready to buy now. . . . There's just a great deal of skepticism
out there. And in that environment, a bill that would require
more transparency and less secrecy gets some traction."
But Paul's critique of the Fed goes well beyond the lessons
of the financial bailout. He believes market forces alone,
not the Fed, should set interest rates. His best-selling book
is called "End the Fed." He has a separate bill
to abolish the Fed altogether. (He is the lone sponsor.)
Paul said in an interview that his measure is strictly about
transparency at the "all-powerful" Federal Reserve.
"What they're talking about when they say they want
no political influence, what they're talking about is they
just want secrecy," Paul said. "Why would they be
so nervous about us finding this out? It tells you there's
something big going on."
Leaders at the Fed have repeatedly stressed to Congress their
increased efforts at transparency. Fed officials have noted
that the central bank is disclosing more information than
ever about its operations and balance sheet, which has expanded
by more than $1 trillion as the Fed has carried out unprecedented
actions to stabilize the financial system. Fed officials have
also said they would work with Congress to provide additional
information about how taxpayer funds are being used.
First elected to Congress in 1976, Paul has earned the nickname
Dr. No from colleagues for his record of voting against almost
anything he sees as intruding on free markets or amounting
to government overreach.
He was one of only a few Republicans to vote against the
war in Iraq. He opposed federal aid to Hurricane Katrina victims.
He has called for abolishing the Internal Revenue Service,
and during his career as an obstetrician-gynecologist in Texas,
Paul saw some patients for free rather than accept Medicare
or Medicaid, he recalled. None of his five grown children
took out federal student loans.
Paul's principled, outside-the-mainstream stance has left
him with few legislative victories. Of the nearly 200 bills
Paul has proposed in the latest three congressional sessions,
only two have made it to the House floor. His Fed audit bill,
now part of broader legislation overhauling the regulation
of financial markets, is by far the most popular.
Driven by beliefs
His bill's opponents do not suggest that Paul is driven by
anything other than his beliefs.
"Ron has his views, it's very strongly felt, and he's
been pounding on this one 30-some-odd years," said Sen.
Judd Gregg (R-N.H.). "This is a very bad idea that's
very foolish and incredibly destructive to our nation if it
were to pass."
Paul said his views on government, the economy and monetary
policy developed gradually. He enrolled in his first economics
class at Gettysburg College, where he graduated in 1957 with
a degree in biology. While in medical school, he continued
to read Ludwig von Mises and F.A. Hayek, Austrian economists
who opposed central economic planning.
In the 1970s, the Nixon administration suspended the dollar's
convertibility into gold and made the decision to impose import
surcharges and wage and price controls. Then came the collapse
of the Bretton Woods system of fixed exchange rates, which
had defined the global economy since the aftermath of World
War II.
"It was a very bad decade in the 1970s. That was a big
influence on me," Paul said. "It just energized
me to start speaking out."
Paul views support for his Fed audit proposal as recognition
of "the failure of the current system, the failure of
Keynesian economics."
Back in Washington, the outlook for Paul's bill is bright,
with leaders on both sides of the aisle supporting some version
of it.
"I agree with much of what he's doing," Rep. Barney
Frank, chairman of the House Financial Services Committee,
said in an interview. "I find him very reasonable and
amiable."
Despite his unusual success in advancing the proposal, however,
Paul is unlikely to cast a rare "yes" vote for it.
That's because it is part of the bill proposing broad new
financial regulation, something Paul simply cannot approve.
"That's my tradition," he said. "I won't vote
for a bill that's a disaster because 1 or 2 or 5 percent of
it is an improvement."