With all eyes on the approaching Iowa caucuses, Senate Majority Leader Mitch McConnell throws a political bone this week to fellow Kentuckian and GOP presidential aspirant, Sen. Rand Paul.
On Tuesday, senators will cast a procedural vote on Paul’s controversial “Audit the Fed” bill. The measure would end the ban on the Government Accountability Office’s authority to audit monetary policy decisions of the Federal Reserve, especially its open market operations and transactions with foreign central banks, explicitly exempted from GAO review since 1978. A long shot to secure the necessary 60 votes to proceed, the bill’s impasse is unlikely to kill this perennial favorite of Fed critics.
The figure below highlights four notable — and largely unknown — features of the congressional history of “Audit the Fed.” To compile the chart, Mark Spindel and I collected every legislative measure introduced in the House and the Senate since 1947 that would alter the powers or governance of the Federal Reserve. The figure compiles all measures that impose any kind of audit of the Federal Reserve System and plots the ideology (as measured by Poole and Rosenthal’s first dimension Common Space score) and name of each bill’s sponsor.
Four trends stand out.
Chart overlaid on photo by J. Scott Applewhite/AP. Figure shows legislative sponsors and their ideology (as measured by Poole and Rosenthal’s Common Space first dimension scores) for all bills introduced (1947-2014) that would authorize some form of audit of the Federal Reserve System. For legislators who introduce more than one audit bill in a given year, the number of measures is shown after the sponsor’s name.
1. The Pauls are Johnny-Come-Latelies to Fed audits
Both Rand and father Ron are newcomers to congressional efforts to audit the Fed.
The first post-war audit measure was offered more than 60 years ago by Rep. Wright Patman (D-Tex.), a longtime populist critic of the Fed who wanted to end the central bank’s independence by placing it back under the thumb of the Treasury Department and the White House. Over the years, Patman offered 16 proposals, eight of them in 1975 alone! He and other critics of the Fed continued to push for audits until Congress in 1978 empowered GAO to audit the Fed, compromising by carving out an exception for monetary policy decisions and transactions with foreign central banks.
As the figure suggests, reforms imposed in that period did little to quell congressional Fed critics, who continued to demand more transparency from the Fed in the decade that followed.
2. Democrats, not Republicans, have historically been the biggest boosters of auditing the Fed.
Democrats, not Republicans, first proposed a more robust audit of the Fed. Patman’s 1954 bill — the first of his 16 eventual measures — came on the heels of the 1951 Treasury-Fed Accord, the agreement that ended the subordination of monetary policy to Treasury’s financing needs. Over the postwar period, Democrats have sponsored twice as many measures to audit the Fed as the Republicans.
3. If it ain’t broke: No one wants to audit the Fed in good economic times.
The Great Moderation — in place from the mid 1980s through 2006 — dampened congressional distrust of the Fed. Congress’s counter-cyclical attention — heeding the Fed’s performance only when the economy sours — gave the Fed a respite from most audit proposals starting in the economically robust 1990s and lasting until the onset of the most recent financial crisis.
4. Recently polarized parties generate Fed critics on both the left and the right.
With the exception of a measure by moderate Sen. Susan Collins (R-Maine) to audit the Fed’s emergency lending programs in 2009, recent audit proposals come exclusively from the party fringes. The polarization of the Fed’s critics partially reflects recent hollowing out of the political center.
But the absence of centrist critics of the Fed today is striking given that prominent moderates of the past — for example, Charles Mathias (R-Md.) and Lee Hamilton (D-Ind.) — offered versions of audit proposals decades ago.
Today, Rand Paul has become a standard bearer for the Fed’s far-right critics, who argue (with no evidence) that the Fed’s recent, unconventional monetary policy debased the dollar, inviting imminent hyperinflation. Such efforts contrast starkly with past efforts to reform the central bank, when lawmakers devised new audits by wrapping them into broader efforts to rebalance Fed independence and accountability. Today’s reform prospects hinge on populist Fed critics finding common ground across the partisan divide.