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The Fed Has Indeed Failed

Here’s a letter of mine published in today’s Washington Post:

Eloquently critical of the Fed’s mission creep, George F. Will correctly noted in his Oct. 27 column, “The Fed has its own take on the Peter Principle,” that “the Fed’s primary purpose is to preserve the currency as a store of value: to prevent inflation.” Mr. Will also correctly reported that, in this primary responsibility, the Fed has failed. But the link documenting this failure — offering data going back only to January 2021 — doesn’t adequately convey this failure’s magnitude.

In a 2012 paper, economist George Selgin, along with co-writers William Lastrapes and my colleague Lawrence White, asked “Has the Fed been a failure?” Their answer is a resounding “yes.” Mr. Selgin and the others found that from 1790 until the Fed’s creation in 1913, the dollar lost — over this entire span of 124 years — only about 8 percent of its 1790 value. In contrast, over the course of the Fed’s first 100 years, the dollar lost about 96 percent of its 1913 value. Of course, today’s inflation drains the dollar’s value even further.

Mr. Will is right: A central bank that performs its primary responsibility so poorly has no business taking on other tasks.

Donald J. BoudreauxFairfax

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