The battle raging in Congress right now, as I wrote recently, is over whether to extend new power to the Fed to act as the "supercop" over the financial industry, or, whether, in fact, to apply more oversight over the Fed and pull in its powers.

  The Wall Street Journal today reports on a petition by "prominent" economists calling on Congress to lay off the Fed:

The petition reflects growing unease among professors, former Fed officials and some investors that the vehemence of the criticism from Congress of the Fed’s handling of the financial crisis suggests a readiness to weaken the freedom the Fed has to move interest rates as it sees fit.

  So, let’s get a few things straight. First, we need to understand how warped and myopic the vision of these prominent economists is. Reading the petition, and listening to the inside-the-Beltway analysis, it is startling how easily people forget that the Fed has TWO missions: price stability (which it manipulates via interest rate setting) AND full employment. I would argue that the Fed–and much of the political establishment–has entirely abandoned or, at best, has let die out of neglect its statutory role in pushing for full employment.

  Second, the Fed’s independence is often framed in language roughly like "it can’t be subject to politics".

  My friends, interest rates and employment ARE very political issues. Whether we care about making sure that every able-body person in America who wants to work has a full-time, decent paying job IS a political decision. Full employment is just as important as price stability and having moderate inflation.

   And, right now, in the Fed’s "independent" role, the politics of those decisions are left to Wall Street and the financial institutions who, thanks to the perpetuation of the myth of the "independence" of the Fed, are the Fed’s main constituency. And those institutions do not care about full employment; in fact, financial institutions are much happier with higher unemployment because higher unemployment means people are afraid to demand decent wages. The truth is that the Fed is not "independent"–it is quite controlled and it simply is acting at the behest of the financial institutions. The Fed’s "independence" is independence from democratic oversight by the people via our elected representatives.

  It is the very "independence" of the Fed that has left us in the mess we are in–the deadly combination of not acting to reduce speculative bubbles (and, in fact, at least in the case of Alan Greenspan, encouraging bubbles) and presiding over an economy that encourages a low-wage strategy.

  Rather than give more power to the Fed, we actually need to reduce its power and "independence. Among other proposals, William Greider suggests, "Assign the Federal Reserve’s regulatory role to a new public agency that is visible and politically accountable. Make the Fed a subsidiary agency of the Treasury Department and reform its decision-making on money and credit to restore an equitable balance between competing goals and interests–seeking full employment but also stable money and moderate inflation."

  We–the people–need to reassert control over financial decisions made that are central to the shaping of a humane economy. It should not be left to the bankers and investors–and to an institution that demands "independence" when it, in fact, should act, via our democratically-elected representatives, on our behalf and at our direction.