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At the Altar of the Fed

The gospel of the credit cartel

The Federal Reserve: A New History (2023) by Robert L. Hetzel. University of Chicago, 696 pages.

Limitless: The Federal Reserve Takes on a New Age of Crisis (2023) by Jeanna Smialek. Knopf, 384 pages.

Our world spins on the expedient use of credit—short-term, long-term, hedged, and parlayed. While none of us can know the future, our financial decisions must adhere to some semblance of a plan, and in the United States the market in credit is what we use to order those commitments. Backing it are not only the banks but the Federal Reserve System—the central bank of the United States.

Variously regarded over the decades as the domain of dispassionate economic experts or of rapacious financier-bankers, the Fed has gradually come to acquire a sacred aura of national authority. Three times in living memory it has emerged to exercise an apparently sovereign power over the course of economic and political events: first, with the “Volcker Shock” from 1979 to 1983, in which the Fed’s then-chairman Paul Volcker pushed aggressively for the prolonged recession that ended the last era of persistently high inflation; then, during the 2008 financial crisis, which saw zero percent interest rates and the global refinancing operation of the North Atlantic banking system; and most recently during the financial panic at the onset of the Covid-19 pandemic, when the Fed again assumed its role as a guardian of world liquidity and solvency.

Shaped by this history, the long-divided faiths of American economic opinion today preach worship of a single church. Two recent books of vastly different substance reveal the current consensus about the Fed’s centrality. In The Federal Reserve: A New History, Robert Hetzel, for four decades a staff economist at the Federal Reserve Bank of Richmond and today a visiting scholar at the Federal Reserve Bank of Chicago, tracks fluctuating interest rates and the accompanying changes in economic thought and central bank policy to make the case that the Fed was the common “causal factor” in “each recession and each inflation” over the last century—and will be for those to come. Hetzel is a conservative monetarist in the Milton Friedman tradition. By contrast, Jeanna Smialek, who writes about the Fed for the New York Times, is canny enough to tell us that “people who claim to have it all figured out are oversimplifying.” Yet the title of Limitless: The Federal Reserve Takes on a New Age of Crisis, her pop history and insider-ish narration of the central bank’s dramatic moves during the height of the pandemic, shows that Smialek shares the premise that the Fed is a center of world-creating power.

The two books demonstrate the different ways in which devout Fed worship is part of elite desire to assign responsibility for the economy to powers above elected government. Nowhere is this more evident today than in what passes for public thinking about the challenge of inflation. Since the spring of 2021, when prices began their ascent, the Fed has naturally beckoned popular allegiance to its default leadership in the nation’s anti-inflation program. As President Joe Biden put it last May, his plan to fight rising prices “starts with a simple proposition: respect the Fed and respect the Fed’s independence.” Such paeans assume a kind of omnipotence which is seldom questioned in “respectable” circles. What kind of national response to inflation, which often comes with full employment, could even exist outside of Fed decision-making? If we are thinking about the future, it is a problem we must honestly consider. Unfortunately, as these two books show, a serious consideration of alternatives to central bank unilateralism—once a vital part of American economic life—is not to be found among our professional Fed watchers today.

The Bank of Banks

Thorstein Veblen called the Federal Reserve nothing short of a banking cartel which, like all potent institutions, had blamelessly won the authority of national law. The Fed’s establishment in 1913, as Veblen wrote, enabled a “collusive plan of team-work in credit to be enforced with a reasonable measure of centralized control.” The most successful bankers had long understood the need for a government cartel of this kind to interrupt the competitive selling of securities—and just as important, the falling values these sales caused—in the heat of a financial panic, the likes of which had befallen the United States four times in the four decades since the end of the Civil War. The Federal Reserve System, originally devised as a National Reserve Association, thus emerged as a Progressive Era solution to the complaints of the president of National City Bank in New York, Frank Vanderlip, who wrote in 1908: “E pluribus unum has been conspicuously left out of our banking legislation.”

What kind of national response to inflation, which often comes with full employment, could even exist outside of Fed decision-making?

The 1913 statute established twelve regional Federal Reserve Banks. Nationally chartered commercial banks in each regional district were required to purchase shares in exchange for the right to appoint six of each of the district’s nine directors. Member banks were required to deposit at their Federal Reserve Region assets equal to a proportion of their own deposit liabilities, a ratio under the discretion of the System. More important, members are entitled to discount the securities on their books—to sell debt obligations in exchange for cash, in other words, but at a discount—at their Regional Reserve Bank. (The discounted price for securities is an interest rate: if you sell an obligation to pay $1,100 in ninety days in exchange for $1,000 now, you are paying 10 percent interest.) The twelve System banks finance themselves and pay dividends to their shareholders using the income on these assets. Atop the Regions sits the Board of Governors of the Federal Reserve System, whose seven members—and chair and vice chair—are nominated by the president of the United States and confirmed by the Senate.

The System’s instruments are designed to operate through members’ reserve accounts. Private banks issue loans to borrowers, which become deposits; as loans and deposits expand, banks must acquire new reserves. To do so, members can borrow directly from the Fed or discount securities they possess. But after World War I, when member banks found themselves flush with reserves acquired during the war, the System and its members alighted upon a third option: an open market in reserves. Hetzel tells the story of this inadvertent discovery. In 1920 and 1921, to offset lost revenues, the Regions began purchasing Treasury securities directly from the members. To their chagrin, the Treasury and the System realized these “open-market operations” influenced the market price for Treasury debt and thus the service charges on the government budget. In response, Benjamin Strong, then chairman of the Fed board, organized a committee of governors, soon reorganized as the Open Market Investment Committee (OMIC) and later written into statute as the Federal Open Market Committee (FOMC), to coordinate purchases of government securities across the Regions.

When the Committee purchased more Treasury securities from members, crediting their reserve accounts, members had less need to borrow in the interbank market, and the interest rate on federal funds fell. If the OMIC increased sales, withdrawing reserves, banks found they had to purchase new reserves from each other—raising interest rates—or discount their bills directly at their Region when they could not afford market rates. This quickly became the preferred instrument for influencing the price members paid for reserves: without taking a hand in members’ business strategies, the System discovered it could influence the prices paid for reserves and, indirectly, the interest rates they charged for their own loans—and if you can control the rising and falling of interest rates, you begin to influence levels of industrial production.

Find the Power

Conventional depictions of the System’s role in economic history minimize this range of powers. Many books on the Fed’s century-plus existence focus on the political debates preceding its creation or, more commonly, the period following World War II, leaving curiously unexamined the continuities between the Fed’s role during the interwar American boom and the postwar period. Thankfully, with the passage of the twentieth century, the angle of our historical lens has widened. Hetzel devotes the first half of his book—almost three hundred of its nearly seven hundred pages—to the period before World War II, illuminating just how conscious the early governors were of the industrial effects of their credit market manipulations. “Under [Benjamin] Strong’s watch,” Smialek likewise writes of the discovery of open-market operations during the 1920s, “the Fed began to engage in macroeconomic management.” That discovery was a watershed, to be sure. But her pithy judgement, while describing an essential truth, conceals blinders that accompany almost all reporting on “the economy.”

Those concerned above all with protecting the value of existing wealth want the Fed to be able to exercise discretion over interest rates.

Historians typically see the modern history of the Fed as beginning after World War II. Between 1942 and 1947, during the war and for two years after, the Fed did not have discretion over interest rates: it “pegged” the interest rate on Treasury debt of all maturities in order to limit the cost of servicing the country's massive wartime debt. But from 1947 to 1951, the Fed slowly and then suddenly allowed Treasury prices to fall as banks sold their excess reserves, an act the Truman administration reluctantly but formally accepted. This is taught as the birth of the “independent” Federal Reserve System. Citing Hetzel’s own archival research into the episode, Smialek calls the early years of the 1950s the beginning of “the Fed’s Second Act.”

The System’s independence from the rest of the federal government raises important questions about democracy and power. Because its influence over interest rates so obviously determines fundamental property decisions, the Fed can decisively change the environment in which spending happens. If you want to maximize employment and economic growth, you want low interest rates—both for government and private borrowing—to minimize the accompanying debt burdens. Those concerned above all with protecting the value of existing wealth want the Fed to be able to exercise discretion over interest rates. Not only are higher interest rates good for lenders, but when they depress investment and employment, they can also check rising prices. Both effects protect the current value of money. Reducing investment and pitching millions onto the unemployment rolls is not without controversy, yet in the pages of the business press it’s always understood as a necessary trade-off in the war against inflation. If the Fed cannot raise interest rates, how can we expect to prevent the occurrence or persistence of the inflation that commonly accompanies a boom?

Readers will not find answers to this question in either of these two books. Today’s concept of a national “macroeconomy”—of an interrelated system of aggregate variables measurable by government surveys of unemployment, national income and product, and “the” price level—is a historical creation, one that held little purchase in American economic thought before the 1940s. Only with great controversy did macroeconomics provide ammunition for Fed debates during the 1970s. One of Hetzel’s more interesting contributions is to reveal this transition in thought about the economy. He describes a legislative campaign first undertaken during the 1920s, and again in the Depression, to direct the Fed to influence the price level of commodities—what he calls “the stable-price movement.” But the Fed viewed such a mandate for prices as beyond its remit and so vigorously opposed it. As board member Adolph Miller explained to Congress in 1932: “The price situation and the credit situation, while sometimes closely related, are nevertheless not related to one another as simple cause and effect. . . . The price level is wholly metaphysical. It is a statistical summation of the movements of an infinite variety of commodities in a vast number of markets scattered over the face of the world.” The Fed sought to prevent the inflation of credit values, of the market capitalization of the nation’s businesses; it was not, by the admission of its own governors and staff, in the business of controlling the price of breakfast. Modern macroeconomics would abhor what Eugene Meyer, then chairman of the board of governors, declared in 1932: “We have no power to determine a price level.”

Hetzel presents this history not to destabilize macroeconomic theory but as an example of the supposedly benighted state of central-bank leaders before the 1950s, who had to “wait” for the true “concepts developed only later as part of macroeconomics.” Their reticence for stabilizing the price level, he writes, “illustrated the level of ignorance of early policy makers,” an assertion that rests on Hetzel’s central ontological claim, on which his entire interpretation of American history turns: that a “natural rate of interest” exists and, if used as a guide by the Fed for its own interest rate manipulations, it will ensure maximum employment consistent with price stability for the nation. Accordingly, every recession can be explained by the Federal Reserve keeping its interest rate targets above the “natural rate,” which moves independently of market interest rates and can only be identified after the fact by the growth of unemployment. (Every period of inflation likewise becomes retroactive evidence of the Fed keeping interest rates below their “natural rate.”) Because Hetzel believes in such a phantasm, one of his central historiographical contributions is to argue that before the Korean War, “policy makers at the Fed did not understand their responsibilities under the kind of monetary regime they had created,” a contention that he repeats numerous times across the book’s thirty chapters.

Whether this was wisdom or ignorance is a question of historical judgment and politics. For those living through the Depression, the uselessness of the idea was obvious. “It sounds like a solution of the difficulty but amounts merely to another way of stating the difficulty,” wrote John Henry Williams, Harvard professor and staff economist at the New York Fed, responding in 1931 to questions about the natural rate of interest. “The natural rate is an abstraction; like faith, it is seen by its works.” Twenty years later, during the Korean War, the argument for allowing the Fed to raise interest rates was entirely political: it was an alternative to strengthening the price controls accompanying the planned defense mobilization inaugurated by that war. But to ignore this conflict and evaluate the evolution of political institutions according to subsequent macroeconomic theory, as nearly all Fed watchers do, is to adopt a doctrinal faith whose works have consistently failed to materialize.

Depression-Era Economics

For those who worship, few examples carry more weight than the Fed’s performance during the Great Depression. For Hetzel—following Milton Friedman and Allan Meltzer—the collapse of industrial production and world trade during the 1930s is evidence par excellence of misguided monetary policies. When lending stopped during the Depression, the Fed delayed lowering interest rates, and bankruptcies rolled through the banking industry. For many liberal historians, the Fed’s transformation in this moment has been a pedagogical signpost for understanding the evolution of American institutions and their legitimating ideologies. At least since the historian Alan Brinkley’s 1996 book End of Reform: New Deal Liberalism in Recession and War, our conception of the modern liberal state has been influenced by the story of the Utah banker Marriner Eccles—Franklin Roosevelt’s appointed Fed chairman during the New Deal and World War II—and his staff economist Lauchlin Currie, both of whom helped popularize the necessity of increasing government spending during the Depression given the demonstrated inadequacy of low interest rates to induce growth.

Whereas proponents of public planning have urged the rule to be low interest rates, monetarists like Hetzel have instead urged a roboticized policy pegged to the “natural” rate of interest.

Smialek repeats this essential outline with a revealing hagiographic twist. Because of his cooperation with the New Deal and wartime program of public spending and low interest rates, and more so because of his public association with FDR, Eccles remains a divisive figure in the debates over central banking. Smialek’s decision to frame her book around the thought of this western magnate might therefore be interpreted as a signal of New Deal liberal sympathies. Instead, in a move representative of a broader liberal discomfort with the New Deal’s animosity toward the centers of private financial power, she celebrates Eccles’s later championing of Fed independence. Thus, the American figure most associated with a Federal Reserve subordinated to social Democratic planning becomes the father of its independence at the dawn of the Cold War. Such a reinterpretation allows Smialek to sidestep the fundamental political and economic problems that would be raised by a more serious consideration of Eccles’s career.

Those problems relate to who controls credit needs and investment in a society where the public, through its government, comes to influence the level and distribution of spending. Historically, we have regulated credit and influenced prices by means other than interest rates. The trillions Congress injected into the economy to sustain businesses and households during the pandemic serves as the most recent example. During the Great Depression, Congress established a government bank, the Reconstruction Finance Corporation, to recapitalize the nation’s private banks, railroads, and other corporations otherwise unable to access credit; independent of the Fed, it funded not only state and municipal governments but new financing agencies—such as the Commodity Credit Corporation and Rural Electrification Administration for farmers, Fannie Mae for homeowners, and the Federal Housing Administration for apartment dwellers.

After World War II, governments of the capitalist bloc continued such planning programs and left price stabilization to what they called “incomes policies”—restraining the tendency of firms and unions to raise their money incomes in a boom beyond what was available at current prices. Wage restraint, price control, and other limitations on individual and corporate incomes (namely: taxes), were paired with government spending, which kept employment high. Restricting credit and influencing prices by means other than interest rates were instrumental to successful stabilization if recessions were to be avoided. Standing powers during the 1940s enabled the Fed to set limits on the total amount of different types of loans member banks could extend for different types of borrowers, as well as to regulate down payments and the length of maturities. Eccles himself advocated for greater powers for the Fed to restrict bank lending—a “futile effort” says Hetzel—before he endorsed interest rates as the primary anti-inflation tool. “Raising the price of money should not be the sole means of determining who gets credit,” Henry Fowler, President Lyndon Johnson’s treasury secretary, said in 1966. Such credit-quota powers were renewed during the Vietnam War until the early 1980s, though invoked only once. And these public authorities to shape the direction and volume of credit were accompanied—from 1942 to 1947, from 1950 to 1953, and from 1971 to 1974—with congressional authorization of price control: dollars-and-cents ceilings on prices of various kinds of commodities and services.

Reducing economic history to the Federal Reserve’s interest-rate target boils down these intricacies to an essence of uncertain usage. The historian Adam Tooze has instead encouraged the public to understand how much of the distant history of central banks could be part of a more visionary future. “The point is to put our current conceptions of what is good and proper for central banks to do in their historical context,” he wrote in 2022, “to show them to be recent and parochial.” Comparing national responses to the global financial crisis in his 2018 book Crashed, he explains that the types of tools enacted in China, for example, “were once commonplace in the West as well, legacies of the World War II era.” For those interested in that history, no citation accompanies the assertion; the full story of American credit policy in the era of the Korean and Vietnam Wars has yet to be published. Incredibly, both Smialek and Hetzel skip entirely the central bank’s performance during World War II or Korea, except to note the period ended, in Smialek’s words, with “the foundation for monetary policy independence, freeing the Fed from political domination”—by which she means cooperation with the elected government to pursue national goals such as housing the population, preventing farm bankruptcies, and maintaining full employment.

Whipping Inflation

How then did the Fed come to play its central role in today’s practice of macroeconomic management? Like much else in the Cold War, the answer turns on Vietnam. In the struggle to arrest the prolonged inflation that accompanied that war, the Fed exercised its recovered authority and depressed the housing market, contributing to an especially severe downturn in 1973. Throughout the Johnson and Nixon administrations, Congress continuously excoriated the Fed’s interest rate increases for wreaking havoc on the nation’s businesses and contributing—through higher prices to service debt—to inflation.

After six years of persistent inflation, the Nixon administration finally acquiesced to apparent historical necessity and asked the nation to freeze wages and prices. Though they had urged the move as a bludgeon against organized labor, whose wage increases were then outpacing inflation, disgruntled businessmen and bankers raised the alarm at the encroachment of government regulation as soon as the 1972 election was over and Nixon reelected. The disintegration of executive responsibility in the prolonged Watergate investigations only confirmed their plaintive requests for an alternative economic authority, one that would both answer the public problem of inflation and restore their private power to set prices. As in the Korean War, the Fed emerged in the breach. “Trust in government had declined dangerously,” then Fed chair Arthur Burns said in April 1973. “Those developments had increased the weight of the System’s obligations.”

Bearing the mantle of government responsibility has heightened congressional skepticism of the System’s independence. In 1975, for the first time, Congress approved a resolution that the Fed chair would be asked to appear before the House and Senate annually to report on the System’s activities. (In 1978, under President Carter, the resolution was written into law.) In response to the era’s overlapping crises of recession and inflation, Congress required the System to audit its members’ lending and, concerned with credit needs cut off by the Fed’s anti-inflation program, openly considered re-establishment of the New Deal-era Reconstruction Finance Corporation as a National Development Bank. But President Carter, unwilling to strengthen an incomes policy by raising taxes on the wealthy or requesting new authority, found himself an apparent captive to his own principled inaction. He needed someone else to intercede, so, in August 1979, he appointed Paul Volcker to the Fed’s chairmanship. That October the Federal Open Market Committee began raising interest rates—from 13 percent to 17 percent over the next six months.

A crucial turning point in the drama was the decision by the Carter administration to finally break with its course of inaction and ask the Fed to use a tool other than interest rates: in March 1980 the Fed acquiesced and imposed quantitative controls on consumer credits, limiting the total amount of loans banks and credit card companies could extend. The presidential request was public, popular, and extremely effective—at first. Individuals obligingly mailed their cut-up credit cards to the White House, but the economy promptly dipped into a recession. Within a matter of months, Congress passed landmark legislation revoking the statutory authority for the Federal Reserve’s credit controls. The omnibus package for monetary reform—the Depository Institutions Deregulation and Monetary Control Act—also phased out the Fed’s power to fix interest rate ceilings on deposits, a regulation in the commercial banking industry since the Great Depression. This allowed banks to compete for deposits—and consumers to shop their nest eggs around to the highest bidder. Journalist William Greider, a leading Fed critic, called the move for higher household and business interest rates the “liberal apology” for inflation, by which he meant a growing concern for those whose incomes depended on accumulated cash and property earnings. To the glee of bankers, the same legislation also repealed a variety of state-level anti-usury laws long on the books. Paying depositors a higher interest rate, after all, requires letting banks earn higher interest rates on the loans they extend.

While historians have rediscovered the “Volcker Shock” in recent years as an inflection point in the growth of neoliberalism out of the postwar order, the focus is misleading when it emphasizes the Fed chairman’s individual push for high interest rates—as if Volcker were a singular historical agent. It is the structure of laws and regulations in which investment decisions take place that transmits interest-rate policy to the banks and their clients—and from them diffuses across the society. Those structures were under dramatic transformation already when Volcker assumed his chairmanship, and deregulation of the banking sector cannot be disentangled from our understanding of the open-market policy of the period or its legacy. Centering our interpretation of these historical transformations on the Fed has only further sacralized the bank and minimized the role of Congress and the White House, as elected officials retreat from real economic management.

Follow the Phantasm

The Federal Reserve: A New History is a frustrating book to read. It is Hetzel’s third book on the subject, and it includes regular citations of his earlier volumes, as well as the same quotations in several places. Time and again in his new book, he exhorts the reader of the importance of allowing “the price system” to function, meaning not only allowing production and employment to be governed by privately controlled prices but allowing investment to be directed by the one price that will—in theory—elicit the maximum employment consistent with stable prices: the interest rate on money. In urging a Fed governed by rules rather than a committee of bankers, Hetzel and those to his radical left agree. But whereas proponents of public planning have urged the rule to be low interest rates, monetarists like Hetzel have instead urged a roboticized policy tracking estimations of the “natural” rate.

Fed policy today continues to be motivated by ideas bearing fundamental similarities to this doctrine. Nowhere is this more obvious than the question of whether the economy is above or below “potential”—a measure pragmatically indistinguishable in effect from the “natural rate” theory. When the economy is above potential, the Fed presumes interest rates are too low; when growth rates are below the long-term trend, the Fed presumes they are too high. That is why the Fed has had to develop new credit instruments in the years after 2008, when seven years of nearly zero percent interest rates—and a political commitment to fiscal austerity—failed to reduce unemployment below 5 percent.

During that crisis, the Federal Reserve undertook a refinancing operation of a scale that in an earlier era had been the responsibility of the government-run Reconstruction Finance Corporation, auguring a fundamental break with the past. Indeed, Hetzel describes the RFC as a “forerunner” to the Troubled Asset Relief Program, though TARP remained within Wall Street’s control. Having assumed these responsibilities, the System has had recourse only to weak arguments as to why it should leave the allocation of credit in the United States to the discretion of self-interested and short-sighted enterprises. But as Hetzel writes, disapprovingly, an interference with this power “inevitably . . . drags the Fed into the political arena” and represents an “expansion of state power.”

The size and risk of this operation was also accompanied by what is arguably the most dramatic reconfiguration of the Federal Reserve’s fundamental policy instruments since the discovery of open-market operations during the 1920s: the payment of interest on reserves to member banks. The Fed had lobbied for such a power in the 1980 monetary reform legislation, but it wasn’t until the global financial crisis that the Fed was given the green light to subsidize the banking industry. Raising these interest payments is how the Fed today manipulates interest rates charged by banks. Just as workers demand higher wages and employers raise prices to increase profits, banks raise interest rates—and the central bank, to maintain the semblance of dispassionate, expert control, raises its interest rate targets.

When the Fed reduced rates from the partial tightening cycle in 2015 and 2016, and prices remained stable despite accelerating growth, the concept of “potential” had to be rethought. Smialek describes a national debate—indeed, as a reporter at the New York Times, she helped to frame it—over “what role the Fed should play more actively than it had in years.” As an example of the Fed’s “more ambitious approach,” Smialek devotes an entire chapter to the August 2020 announcement of a new balanced policy on inflation, in which “it would not raise interest rates based purely on a suspicion that the labor market had heated up too much.” This she describes as “revolutionary.”

Yet there is little reason to expect the Fed will do anything to disturb the established patterns of growth and distribution of the American credit system, at least under current chairman Jerome Powell and the Biden administration. Abashed of the spotlight after the financial crisis, the Fed now publicly disavows the powers it assumed to rescue the financial services industry—and for good reason. In 2020, the Fed again extended emergency lending to non-bank borrowers. Bowing to congressional scrutiny, these credit lines included small businesses and, at least formally, municipalities. Nine of Smialek’s sixteen chapters concern the period from the beginning of the Covid-19 pandemic until the autumn of 2021—about twenty months—when national debate appeared to turn on just what powers the emergency-augmented Fed would exercise. (Future historians will consult it, along with Nick Timiraos’s Trillion Dollar Triage and Adam Tooze’s Shutdown, to reconstruct a play-by-play of the events.) Hetzel considers these programs a threat to the republic and the Constitution: for the Federal Reserve, he writes, to overtly commandeer “the allocative role of private credit markets”—that is, for the cartel to become public rather than lurk in the background—represents “a permanent movement away from a free market system.” Sympathetic to her subject, Smialek acknowledges these concerns, faithfully reporting that “the Fed’s job was to lay the groundwork for prosperity, not to decide how it was distributed.” By the end of 2020, she concludes bloodlessly, “the central bank had carved out a middle path.”

The idea of a “market allocation of credit,” of course, obscures what is obviously private control over investment according to proprietary criteria and private interests. The credit cartel must preserve the appearance of inaction in the allocation of credit, of not overtly influencing member lending policies, because such influence would reveal the latent power it already exercises and subject it to public scrutiny. Unless we are willing to acknowledge that sustaining full employment and achieving price stability have historically required subordinating the System to a national program and divorcing it of its autonomy over anti-inflation policy, there is little reason to flatter the institution with celebrations of what are in reality acts of magnanimity. This is the source of the controversy over the Fed’s emergency lending in 2008 and 2020. For those like Hetzel who remember the 1970s, they resurrect the very real threats of industrial planning, when the autonomy of the nation’s powerful banks and corporations to determine the nation’s future was most under threat.

With habituated credulity and patriotic infatuation, the nation’s journalists and economists, businessmen and schoolteachers, all understand the Fed as the institution that can act in a manner elected government cannot: as the ultimate authority in our economic organization, the omnipotent sovereign to whom we entrust—for better or worse—the shaping of history. But celebrating the institution as a cockpit for economic steering conceals the reality of where power lies today: in those whose interests the System irresistibly serves. Rather than confront that reality, journalists and academics persist in the ceremonial worship of macroeconomic truths bestowed by the Federal Reserve, if for no other reason than that Congress and the White House dissemble when confronted with the urgent task of economic planning. Which makes sense, if you think about it, because confronting the future is more challenging than entrusting responsibility for it to others.