BRUCE K. MACLAURY
Central banks are controversial and often unpopular institutions in most societies in which they operate. They are controversial and unpopular, I think, for four reasons. The first is that they have great power. They can make or break economic activity in a society--which is about as great a power as one can have. 1 The fact that central banks have great power means that they are political institutions whether they like it or not. Any institution in society that has power is going to be controversial.
A second reason they are unpopular is that they have an unpopular task to perform. They are the constituency established in American society to be the pleader and actor on behalf of "sound money"--that is to say, anti-inflation measures. Assuring the soundness of the nation's currency is one of their legislative mandates; that means preventing inflation from eroding the value of the dollar. Bill Martin, one of the great chairmen of the Federal Reserve System, used to say that the job of the Federal Reserve was to take away the punchbowl just as the party was really getting under way. In other words, once the economy is really getting up a head of steam, the Federal Reserve's assigned role is to step on the brakes in order to prevent the growth of the economy from getting beyond the capacity of production. The only question is: how hard?
A third reason central banks are controversial and unpopular is that the language and the institutional arrangements of the Fed are arcane, not easily comprehended by the person in the street who has to cast a vote. To most people, the Fed is a distant power headquartered in Washington, a Washington institution that speaks its own language.