Ah, the Fed.

I’ve always been amazed to see how such a “traditional” and supposedly “free market” institution has usually enjoyed a great degree of public acceptance and credibility. The Federal Reserve has made erroneous predictions (remember its assurance of “transitory inflation”?), shown astounding hubris (its job of setting an accurate price of money assumes that a small group of experts know what that price should be), and to my knowledge has never predicted a recession (we’ve had more than a dozen since its creation in 1914).

In the process, it’s created a series of bubbles, inflations, and, ultimately, the necessary recessions that few politicians seem to appreciate.

Before Fed Chairs Jerome Powell and Janet Yellen, there was Ben Bernanke, appointed by president George W. Bush. I had the opportunity to meet with Chairman Bernanke in 2011 in the Fed’s board room in Washington, DC, along with some other teachers who were invited to a symposium on the Great Recession of 2008-09.

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After being escorted in groups of ten through metal detectors by gun-toting guards, we entered the board room, sat at the beautiful oval table, enviously gazed at uncut sheets of $100,000 bills on the walls, snitched a few Fed blue and white cocktail napkins, and reverently waited for “The Chairman” to be ushered in. When Bernanke entered, there was some considerable adulation from the teachers. Bernanke wasn’t quite Mick Jagger, but to the economics teachers in the room, he was an economic rock star.

After defending the Fed’s policies during the previous financial crisis, he admitted that the Fed needed to reduce its balance sheet by over a trillion dollars in the future (it had ballooned from less than $1 trillion to more than $3 trillion), but he seemed amazingly confident this would be possible without disrupting the economy.

Well, that “normalization” of policy never happened. In fact, the balance sheet tripled again—reaching about $9 trillion during the pandemic.

What has this “quantitative easing” done? The combination of the Fed buying the federal government’s debt and mortgage debt lowered interest rates at 5000-year lows allowed massive government spending and historic levels of debt. It also fueled a second housing boom and exacerbated income inequality (and the attendant social polarization) by increasing all asset prices. And now, we are left to deal with the inflation it caused.

That is the pickle that we’re in now. I have no predictions how all this will turn out, except that emerging from our fiscal mess will be neither quick nor easy. The Fed is not solely to blame, but they are basically acting as monetary heroin dealers to cheap money addicts.

Parents and teachers often tell their kids to tell the truth as an everyday practice. We want them to recognize and revere truth. When the Fed pushes interest rates to near zero for nearly 20 years, and when governments spend money that younger generations of taxpayers will need to pay, we need to understand the consequences of distorting the truths that prices communicate.

Which brings us back to economics.

The old dig on economics is that it is the “dismal science,” but it really is a truth-telling enterprise. Freely set prices in a market economy tell the truth about scarcity, and letting these prices adjust by the actions of billions of consumers acknowledges age-old truths. If humans were perfect and omniscient, free markets might not be as necessary. Given who we really are, markets are indispensable.

Yes, sometimes, the truth hurts. But we will need to return to monetary truths to recover our prosperity and ease our social divisions.