September 29, 2015

What If Ron Paul Was Chairman of the Federal Reserve?

Former congressman Ron Paul was recently interviewed (link) about the Federal Reserve's announcement that interest rates will remain near zero.

Paul, a longtime critic of the Fed, explained that the real problem isn't that the Fed makes bad decisions. The real problem is that, when it comes to centrally planning an economy, there are no good decisions.

The whole enterprise of central planning is misguided because there is no correct interest rate (or price or wage) other than the one that naturally arises in a free market. But a planned economy is not a free market. Any attempt to set interest rates (or price ceilings or minimum wages) will necessarily be arbitrary.

The interviewer then asked Dr. Paul what he would do instead if he was the one setting interest rates.

Asking Ron Paul to plan the economy is a bit like asking a vegan whether he wants chicken or fish for dinner.

What the interviewer seems to have missed is this: Paul's point isn't that the Fed made a bad decision in this one instance but that there is no right Fed decision.

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