By Rob Cox
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
A portrait of Milton Friedman hangs at the entrance to the Stauffer Auditorium at Stanford University’s Hoover Institution. It carries no identification, and doesn’t need any. All who enter here can be counted on to recognize the patron saint of contemporary free-market economics. And so it was two days last week, when the leaders of what might be dubbed monetary fundamentalism gathered under Friedman’s watchful gaze.
Stanford’s John Taylor, a former Treasury official and academic who created an eponymous and influential rule for setting interest rates, pulled together sitting and former presidents of Federal Reserve banks, along with prominent academics and former members of the European Central Bank board. They discussed a new framework for running the world’s central banks.
The cries from this boil of hawks may not have changed much over the decades, but more than five years since the financial crisis roiled the world’s financial markets and economies they deserve a fresh listen.
The views vary, but there is a common creed: The U.S. central bank has expanded its discretionary powers in monetary and credit policy in ways that threaten its existence. This isn’t mere traditionalism. It is an admission by powerful central bankers that they understand their own limitations, and they would rather see their powers circumscribed than fail abjectly, since failure could lead to the dismantlement of Fed independence.