Rep. Ron Paul's feelings about America's central bank are a matter of public record. An extensive public record: In dozens of congressional hearings over the past four decades, he has ribbed, cajoled, harassed or annoyed any representative or defender of the Federal Reserve brave or unlucky enough to appear before him. Â¶ Normally, his interrogations concern America's profligate money printing, Congress's unnecessary spending, the Fed's secrecy and, especially, gold, which he believes should underpin the currency to render it sound. But his distrust runs wide and deep. Consider this comment from a 2007 hearing: "This whole notion that a central bank somehow has the wisdom to know what interest rates should be is, to me, rather bizarre. And also the source of so much mischief." Â¶ That first sentence is a neat encapsulation of his economic worldview. And the second could well apply to Paul himself. His career in and out of public office has been devoted to two propositions: 1) The Fed is bad. 2) The gold standard is good. His consistency has been impressive-which is not to say he has been influential. He rarely gets satisfactory answers in hearings, and he'll probably never get satisfaction in his long crusade to radically alter America's monetary policy.
But if you tilt at windmills long enough, sometimes you hit. And Wednesday, Paul did: He held his first hearing as chairman of the House Financial Services Committee's subcommittee on monetary policy, inviting two Austrian-school economists and one lonely representative from the left-leaning Economic Policy Institute to debate how Fed policy affects the unemployment rate.
This may be Ron Paul's moment. The question now is what he does with it.
Paul had his monetary-policy epiphany on Aug. 15, 1971 - the day the Federal Reserve shut its "gold window," meaning foreign governments could no longer trade gold for dollars at the fixed rate of $35 an ounce. The Bretton Woods system officially ended and the dollar became fully "fiat currency," backed by nothing but the promise of the federal government. It shocked Paul, then a successful Texas obstetrician. "That's why I ran for Congress," Paul said. He was elected to the House in 1976, running as a Republican on a limited-government platform.
Paul has since bounced in and out of Washington. He has supported cutting defense spending, ending the Education Department, stopping welfare and slashing taxes. But he's best known for his unrelenting skepticism of the Fed. Paul believes it stokes inflation and will harm the U.S. economy as long as it persists. Gold, he thinks, is the answer.
His monetary-policy quest has been quixotic. The closest Paul came to getting the gold standard reconsidered - let alone reinstated - came in 1981. At the beginning of the Reagan administration, Paul sat on a commission appointed to debate whether the United States might benefit from returning to commodity-backed money. Reagan had a "slight bias toward gold and its disciplines," Treasury Secretary Donald Regan told reporters at the time. But in a final report, the panel rejected the idea.
Even so, the next day's papers described Paul as jubilant. "For the first time in 50 years they seriously considered it," he said. "I do think that in due time, possibly even in this decade, there will be another serious discussion of gold as a monetary standard. I still do believe that gold is the money."
That discussion never really happened, though not for Paul's lack of trying. For the most part, he and his ideas became something of a sideshow - he came to be seen as a crank, a radical, so far outside the mainstream he could be safely ignored.
That changed in 2008, when he ran for president again. This time, the run brought him cult-icon status. The phrase "End the Fed" - the title of his most recent book - comes from his campaign. In it, he describes visiting a University of Michigan campus after an October 2007 Republican primary debate. To his surprise, when he "mentioned monetary policy, the kids started cheering. Then a small group chanted, 'End the Fed! End the Fed!' The whole crowd took up the call. Many held up burning dollar bills, as if to say to the central bank, 'You have done enough damage to the American people.'â"
He remains an iconoclast even within his own party, and his legislative proposals tend to go nowhere.
But last year Paul and other members of Congress successfully placed a provision to perform an audit of the Federal Reserve into the Dodd-Frank law, against the opposition of both the Fed and the Obama administration. The bill also forced the bank to release the details of 21,000 loans granted to financial firms during the credit crunch.
Now Paul is in charge of the House subcommittee that oversees the Fed. That might cause some awkward moments. The title of his book is not misleading. The central bank "is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty," he writes.
The financial crisis and recession brought about a wave of anti-Fed sentiment. "In the minds of the public, the Fed was the great enabler of this huge catastrophe that we've had since the panic of 2008," said Steve Hanke, a senior fellow at the Cato Institute.
Such criticism is hardly unusual.
"There is always Fed-bashing that ebbs and flows, coming from the strange bedfellows, from the far left and the far right," said Sarah Binder, a Brookings Institution fellow.
Still, there is a case to be made that this time is different. The severity of the recession prompted the Fed to take extraordinary measures to stabilize the banking sector during the credit crunch. It accepted more than $1 trillion in junk-rated assets as collateral, something it never had never done before the crisis. And it was not just Goldman Sachs and Lehman Brothers availing themselves of the Fed's largesse - it was Caterpillar and the Korean Development Bank.
Binder acknowledged that the Fed might have overstepped far enough to generate some real headaches.
"The independence of the Fed has really been compromised by what happened during the financial crisis," she said. "There is aggressive and ambitious criticism coming from a lot of fronts."
The Fed has taken steps to respond. Chairman Ben S. Bernanke has appeared on "60 Minutes," going so far as to give a tour of his childhood home in Dillon, S.C. He has visited campuses, explaining the crisis in clear if professorial terms. He has courted members of Congress and journalists. Then there is the St. Louis Federal Reserve, which is hosting a $1,000 contest for the best YouTube video stressing the value of an independent central bank. "What makes independence for a nation's central bank important?" the promo asks. "Let us know through your video creation!"
But Paul's adversary is not only the Federal Reserve. It is also mainstream monetary economics itself. As a devotee of the Austrian school, whose luminaries include Friedrich Hayek and Ludwig von Mises, Paul stands firmly outside policymaking and academic circles, a point he enthusiastically admits. (The Austrian economists also often quibble with other libertarians, such as those at Cato.) His beef is not with how central bankers do their jobs; it's with central banking itself.
"The Fed, rightly so, criticizes Congress for spending too much - but they make the money available to us!" he said. "It buys debt, keeps interest rates low, and sticks it to the people who want to save and make money. It is so unfair. And I think it is the first time in the history of the Fed that people realize it is not their friend. It just gives us booms and busts."
Many economists disagree, with varying degrees of vehemence. One of the gentler responses comes from Vincent Reinhart, a former Fed official and current American Enterprise Institute scholar: "There is tremendous complexity in the monetary and banking systems now, and Ron Paul is basically saying: 'Let's make everything simple again. If we could make market discipline effective, we wouldn't need such complicated regulation. If we had the gold standard, we wouldn't need complex monetary policy.' But the issue is: How do we get from here to there? There might not be a way. And at some point, it is just nostalgia for a time that never really existed."
Many economists point to evidence that banking crises and recessions were much more severe leading up to the Great Depression and the advent of modern monetary policymaking. They also note that the Fed's monetary policy in 2008 and 2009 stabilized the banking sector, boosted GDP and kept up employment.
But Paul is not always happy to entertain such counterfactuals or criticisms. For instance, who does he consider his most trenchant critic? He paused. "I did like talking to Paul Volcker." Have any economists or economic theories changed his views since the 1970s? "I mostly go back to the Austrian economists," he said, matter-of-factly.
Paul maintains that the Fed has set us up for a currency crisis down the road. "It won't be as bad as Zimbabwe," he said, "but perhaps something like 1979 or 1980." He noted that geopolitical events often kick off economic ones. "The revolutions in the Middle East, that could end up being the precipitating event," he said. "Tunisia, Egypt - they may well tumble."
At Wednesday's hearing, Paul's panel invited three economists to debate the question "Can Monetary Policy Really Create Jobs?": Thomas DiLorenzo of Loyola University Maryland, Richard Vedder of Ohio University and Josh Bivens of the Economic Policy Institute. The answers were no, no and yes.
The conversation lurched from the Fed's dual mandate to quantitative easing to the Dodd-Frank law to China to price stability to the money supply to money volatility to universal default laws - resting only briefly on the subject of monetary policy and unemployment.
The economists were so ideologically at odds - DiLorenzo and Vedder both from the tiny, heterodox Austrian school and Bivens representing nonpartisan but progressive EPI - that they agreed on virtually nothing except the faults of the North American Free Trade Agreement.
Then, the ranking Democrat on the committee, Rep. William Lacy Clay (Mo.), really set off fireworks. He began by criticizing the Austrian school, saying it was marked by its "lack of scientific rigor and rejection of empirical data." (Paul sat next to him poker-faced.)
Then he attacked DiLorenzo, noting he is perhaps best known for a "revisionist" history of Abraham Lincoln - and, more to the point, holds an affiliation with the League of the South, a "neo-Confederate" "hate group" that seeks to build a society dominated by those of European backgrounds.
"After reviewing your work and the so-called message you employ, I still do not understand you being invited to testify today on the unemployment situation," Clay said. "But I do know that I have no questions for you."
But Paul seemed upbeat. The subcommittee accomplished his goal of bringing outside perspectives into Congress and letting criticism of the Fed fly.
"Everybody knows that I believe in free markets and sound money and I'm a critic of Federal Reserve policy," he said. "That was the point I wanted to get across."
Lowrey reports on economics for Slate.