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In a House hearing Congressman Ron Paul took issue with the basic logic of the Federal Reserve as well as this Fed’s recent cuts in interest rates in an Austrian inspired manner. Given, the Chaimen did not have much time to respond but I was surprised with how inadequate his response was in the time given. There were two main questions posed to Bernanke: a) what justifies the Federal Reserve’s inflationary nature (given, it this was somewhat a loaded issue) and b) why cut interest rates assuming that the current problem is provoked by an inflationary monetary policy.

To the first issue, Bernanke gave a weak one sentence answer regarding how the Fed is just doing the job that the Congress authorized them to do. His answer escapes the entire issue of what justifies that authorization in the first place. To the second issue the Chairman only alluded to how the Fed must factor both inflation and employment to achieve an optimal balance. Basically, it was clear that the two men were not on the same page. The exchange illuminated the simple differences in how mainstream economists and radical ones (Austrians for instance) see the subject.

Here is the video:

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The Bernanke Challenged On Monetary Theory by New School Politics, unless otherwise expressly stated, is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 United States License.