Responding to Kansas City Fed President on “Economic Stability”

Recently, Kansas City Federal Reserve Bank President Thomas Hoening was in New Mexico and sat down with Albuquerque Journal writer Winthrop Quigley for an interview. That interview is available here. While Hoening had many good things to say about reducing government spending and stabilizing the US economy, he left out or advocated for some very questionable policies. I responded in a letter to the editor that was published on Monday.

Unfortunately, three things jumped out at me about the article that cause serious problems with Hoenig’s outlook for the U.S. economy and what we need to do moving forward.

First and foremost, Hoenig is quoted as saying “too little taxation” harmed the economy. This is simply wrong. Federal spending as a percentage of U.S. GDP has remained relatively constant at 20 percent for decades. Only in recent years has spending grown out of proportion to the economy.

One major reason for this imbalance is entitlements like Medicare and Social Security. Hoenig does not address the dire need to reform these programs lest they continue to eat up ever-greater percentages of economic output.

Lastly, and perhaps least surprisingly, Hoenig fails to mention the role his own institution, the Federal Reserve (and government in general) has played in the current economic crisis. While the crisis was caused by multiple factors, the Federal Reserve embarked upon an “easy money” policy to prop up the economy after 9/11.

This flood of money and the federal government’s use of Fannie Mae and Freddie Mac to funnel money into the housing market were integral to the creation of the bubble that popped a few years ago.

Economic stability is indeed important, but government policies in Congress and at the Federal Reserve have been the leading causes of instability over the past decade.

Paul J. Gessing
President
Rio Grande Foundation
Albuquerque

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2 Replies to “Responding to Kansas City Fed President on “Economic Stability””

  1. Good observations Paul, but let us not foster the imperssion, by lumping them together, that the FED is a part of the federal government when it is, in fact, a government guananteed cartel of the largest “private” banks in the country.

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