Watershed Moment: Centennial Monetary Commission Passes Key House Committee

The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)
The Federal Reserve headquarters in Washington, DC (photo credit: Dan Smith, CC BY-SA 2.5)

Yesterday, the House Financial Services Committee passed Rep. Kevin Brady’s (R-TX) Centennial Monetary Commission, H.R. 2912, by a vote of 35 ayes to 22 nays and sent it on to the full House for consideration.  The bill, if enacted, would create an independent Commission to assess the performance of the American economy under the various Federal Reserve monetary regimes over its first 100 years of operation and proposals respecting other monetary rules.  The legislation charters the Commission to conduct hearings and to provide a report to Congress in December 2016.

According to a statement by Ralph Benko, APIA’s senior economics advisor and a regular contributor to The Pulse:

This could be a watershed moment in restoring job creation and income mobility to the American workers.  Good monetary policy is a key ingredient in allowing workers and working families to flourish.  We see this from the robust job creation under the Fed’s ‘Great Moderation’ during the Reagan and Clinton eras.  For the past 15 years, the American economy has stagnated at an average of less that 2% economic growth per year, less than half the pace of the post-recession Reagan economy and of the Clinton era economy.  There was no radical change in tax, spending, regulatory, nor trade policy 15 years ago.  The one major change in macroeconomic drivers was monetary policy.  The Commission is a way to make a meticulously neutral empirical assessment of what monetary policy is most conducive to creating a climate of equitable prosperity.  It is of key importance, and Mr. Hensarling and Mr. Brady, as well as all the Committee Members who voted in favor, deserve praise for their leadership.

Most Republicans, free market economists, and conservatives agree that more jobs will be created, and the economy would thrive more, if the Federal Reserve is guided by a rule, but have not yet reached agreement on which rule would be optimal.  This also is a position advocated by former Federal Reserve Chairman Paul Volcker.  Meanwhile, most Democrats believe that Federal Reserve discretion better serves the purposes of job creation.  The Commission is chartered to conduct an empirical review of the data to determine what the evidence demonstrates about these two rival propositions.

The Commission enjoys widespread support among the conservative base: It grew out of a plank in the 2012 Republican Platform calling for a commission.  The RNC adopted a unanimous resolution calling for its passage at a winter 2014 meeting.  Major conservative policy institutes have praised the Commission, including the Heritage Foundation (which issued a Backgrounder), Cato Institute, a leading AEI senior fellow, Atlas Economic Research Foundation, and American Principles in Action. A call for just such a Commission was the subject of a call for action by the Weyrich Lunch, and a Memo to the Movement by the Conservative Action Project, which labeled last year’s version of this legislation as a critical agenda item for the Congress in a statement endorsed by ATR’s Grover Norquist and David McIntosh, now president of the Club for Growth, among dozens of others.

According to Benko, “Monetary policy as a driver of job creation and equitable prosperity is an issue that deserves to be front and center in the presidential race. Sens. Rand Paul and Ted Cruz have co-sponsored the Senate version of this legislation, whose prime sponsor is Senate Whip John Cornyn, all of whom also are greatly deserving of praise for their leadership in this.  Both Sens. Paul and Cruz have led the field of presidential aspirants in addressing the ‘Job Creation Depends On Good Money’ issue.  We encourage all other presidential aspirants, of both parties, to endorse the Commission.”

Nick Arnold is a researcher for American Principles in Action.