Phalanx of House chairmen confront Fed Chair Janet Yellen

On Thursday, Nov. 19, the Paul Ryan House took its most impressive step yet in advancing Speaker Ryan’s (R-Wis.) promised transformation of our political culture.  Ryan, in accepting the gavel, declared,

“Here’s the problem. They’re working hard. They’re paying a lot. They are trying to do right by their families. And they are going nowhere fast. They never get a raise. They never get a break. But the bills keep piling up—and the taxes and the debt. They are working harder than ever to get ahead. Yet they are falling further behind. And they feel robbed—cheated of their birthright. They are not asking for any favors. They just want a fair chance. And they are losing faith that they will ever get it. …

“What a relief to them it would be if we finally got our act together—what a weight off their shoulders. How reassuring it would be if we actually … grew our economy, … lifted people out of poverty, and paid down the debt. At this point, nothing could be more inspiring than a job well done. Nothing could stir the heart more than real, concrete results.”

{mosads}Ryan is losing no time in taking bold steps. With the instrumental support of Leader Kevin McCarthy (R-Calif.), leadership brought up for a floor vote — and passed — possibly the most crucial piece of economic growth legislation in many years: Huizenga-Garrett’s FORM, the Federal Reserve Oversight and Modernization Act of 2015.  

This, for procedural reasons, was amended to include, in full, Rep. Kevin Brady’s (R-Texas) Centennial Monetary Commission.  FORM, very much including the Commission, represents the most important legislation addressing the Fed’s performance since the Humphrey-Hawkins Act of 1978.

The premier architects of this historic legislation are Monetary Policy Subcommittee Chairman Bill Huizenga (R-Mich.), Capital Markets Subcommittee Chairman Scott Garrett (R-N.J.), and House Ways and Means Committee Chairman Brady House Financial Services Committee Chairman Jeb Hensarling (R-Texas), was instrumental in the advance of this legislation. 

Impressive team. Impressive teamwork. Game changing.

Ryan and McCarthy now have a deep bench of chairmen who have, between them, perhaps the greatest level of financial intelligence enjoyed in the Congress since Rep. Gramm dined alone. Fed Chair Yellen, directly and through her proxies such as former Chairman Ben Bernanke, is pushing back. 

Neither Ryan nor any of this team of economic growth minded chairmen wish to interfere with the Fed’s independence.  That said, independence does not equal impunity. As economist John Cochrane stated in his House testimony earlier this year: “the more an agency follows rules, the more limited its powers, the more independent it can be.”  

The passage of this legislation is historic. The American economy has been stagnant, now, for 15 years. 15 years ago no significant changes in tax, spending, regulatory, or trade policy occurred. The sole major macroeconomic policy shift? Monetary policy. 

Inflation is not the only disorder that comes from bad monetary policy. Many believe that the booms, busts, the panic of 2008, the Great Recession, and the Sluggish Recovery, were caused by poor Federal Reserve monetary policy. Congress has the duty to look.

Critics of the Fed aren’t marginal figures.  Last year, former Fed Chairman Paul Volcker had this to say before the Bretton Woods Committee:

“By now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth.

“The United States, in particular, had in the 1970’s an unhappy decade of inflation ending in stagflation. The major Latin American debt crisis followed in the 1980’s. There was a serious banking crisis late in that decade, followed by a new Mexican crisis, and then the really big and damaging Asian crisis. Less than a decade later, it was capped by the financial crisis of the 2007-2009 period and the great Recession. Not a pretty picture.”

The proponents of rule-based monetary policy have been stymied. That should, and thanks to FORM, soon may, end. The enactment of FORM, especially the Centennial Monetary Commission, could prove a game changer in ending secular stagnation. 

The Freedom Caucus should give Ryan a standing ovation.  Let’s hope the Senate is paying attention. Long term, the new prominence, under Ryan and McCarthy, of chairmen Hensarling, Huizenga, Garrett and Brady could be a game changer for equitable prosperity.

Benko is senior adviser on Economics at American Principles Project.