The following is an excellent excerpt from the book “ECONOMIC APARTHEID IN AMERICA: A Primer on Economic Inequality & Insecurity” by Chuck Collins and Felice Yeskel from Chapter 5 “Actions to Close the Economic Divide” on page 215 and I quote: “Reforming Monetary Policy and the Federal Reserve – “Issues of equity and social cohesion [are] issues that affect the very temperament of the country. We are forced to face the question of whether we will be able to go forward together as a unified society with a confident outlook or as a society of diverse economic groups suspicious of both the future and each other.”
–William McDonough, former chairman
of Federal Reserve Bank of New York.
Through its control over the levers of monetary policy, the Federal Reserve has more power to touch the lives of ordinary people in America than our democratically elected public officials. The Fed plays a key role in whether we have jobs, access to home ownership, what interest rate we pay on our variable-rate mortgages, and whether we can pay off our credit card balances.
With so much power over our lives, what can we do to ensure that the Fed is accountable to the concerns of ordinary people? The governance structure of the Federal Reserve has been organized to supposedly insulate it from politics, but also by law it must have representatives of the broader public interest. But, as Fed-watcher William Greider writes, “it is fatuous to pretend that the Federal Reserve can somehow be insulated from politics.”
It’s bombarded constantly with pleas and demands and unsolicited advice from select interests. Private and semi-private dialogues about monetary policy go on continuously between the Fed, financial markets, banks, brokerages, and other major players, both foreign and domestic. The only players left out of the conversation are the American people and, to a large extent, their elected representatives.
Expanding Citizen Accountability Over the Federal Reserve. – The Fed is not set up for ordinary citizen participation, but there are ways that citizens can begin to exercise power toward the Fed, primarily through coalitions. Leverage points include the selection process for chairman and appointments to regional Federal Reserve boards, Congressional hearings covering the Fed’s full-employment mandate under the Humphrey-Hawkins law, and through the creation of advisory boards to monitor certain aspects of the Fed’s performance.
Every four years, the president of the United States gets to nominate the chairman of the Federal Reserve. Both Presidents Clinton and Bush chose to renominate the Reagan nominee, Alan Greenspan, signaling their of allegiance to Wall Street and conservative monetary policy. In 2008 and 2012, there will be opportunities to draw public attention to the policies of the Fed and the political climate in which the Fed chair is chosen. Presidential candidates should be publicly pressed for their views on Federal Reserve policy and leadership.
The composition of regional boards is an important issue in which citizen advocates can push for a greater diversity of perspective. Bankers and CEOs of large corporations, with a sprinkling of entrepreneurs, labor leaders, and community-development practitioners, heavily dominate the seats on the twelve regional boards. Community representatives are generally isolated and need support and accountability to advance the interests of workers, home buyers, small businesses, and consumers. See the “Fed Vacancies” section on the website of the Financial Market’s Center to learn more abut how to get involved in selecting Federal Reserve board members.
Each year, the chairman of the Federal Reserve is required to report to Congress about the impact of Federal Reserve policies on its legal mandate to promote full employment. This is a rare opportunity to press elected officials to hold Fed leadership accountable.
District Organizing. – The Federal Reserve has divided the country into twelve districts, each with its own Federal Reserve Bank and governing board. Local Fed branches are responsible for monitoring economic conditions in their regions, moving currency in and out of circulation, and supervising and regulating banks. This includes ensuring compliance with the federal Community Reinvestment Act, which requires banks to meet the credit needs of the communities from which they draw deposits.
In the Fifth Federal Reserve District, also known the Richmond Fed, which includes Maryland, West Virginia, Virginia, North Carolina, and South Carolina, a coalition of labor and community activists has begun organizing to enhance the Fed’s accountability to local residents. The coalition includes people from affordable-housing organizations, trade unions, public and private community-development agencies, and small-business development organizations. Its organizing work has focused on the three areas of Fed reform: governance, support for community development, and monetary policy.
$ GOVERNANCE. The Fifth District Initiative is pressing to diversify the interests and perspectives represented on the boards of directors of the Richmond Fed and its branches. The law does require consumer and labor representation on Reserve Bank boards. By watchdogging the appointment process, nominating candidates, and meeting with them regularly, they aim to shape the outlook of Fed policy. District activists have organized tours for the Richmond Bank’s president and senior staff to see local community conditions and successful community-development projects in Virginia and South Carolina.
$ COMMUNITY ECONOMIC DEVELOPMENT. District activists have pushed the Richmond Fed to be more involved in community development and reinvestment in the district. This would include broadening financing for affordable housing and small-business development. The formation of a Community Development Advisory Council has become a mechanism for greater accountability.
MONETARY POLICY. Coalition members have pressured the Richmond Bank to adopt more community-and worker-friendly perspectives in its monetary policy. They have suggested broader indicators to measure the economic health of the districts’s economy, including access to credit for businesses in low-income communities, poverty rates, economic security of workers, emergency shelter requests, and more. They developed a survey and methodology for the Richmond Bank, including interviews with 150 to 200 organizations, small-farm organizations, employment-training firms, and minority-and women-owned business associations.
As citizen activists, we face the challenge that the Federal Reserve seems immune to pressure from the voices of ordinary working Americans, farmers, and consumers. Yet the history of the fed and its existing structure underscore that this institution was intended to serve broader interests than it does today. As with all the action steps outlined in this primer, we need to reassert our democratic entitlement to broader control over the Federal Reserve and its policies.
Alternatives for a Fair Economy – An essential part of building a fair economy and reducing inequality is to create a parallel economy that works to meet people’s real security needs in the context of the predatory global market economy. This is sometimes referred to as “building the new economy in the shell of the old.” There is a tremendous amount that has been written on this topic; what follows will be a cursory summary. The principal pitfall in this arena is that it can lead to a withdrawal from the larger policy battles for a fair economy. For example, starting a local currency or cooperative to meet the needs of a small constituency must work in tandem with efforts to reform the rules of the national and global economy.
One simple way to think about gaining control over a local economy is to figure out what the factors of production are and how local ownership or control can be enhanced. The traditional economic model refers to land (or natural wealth), labor (workers), and capital (credit, finance, accumulated labor power in the form of money). Capitalism has been concerned with the project of extracting value from the earth and human laborers for the owners of capital. Capital accumulation (great wealth) comes from successfully getting more work out of people than you pay them and consuming more of the earth’s resources than you put back. Obviously, this leads o human impoverishment and environmental ruin, which is why we are in this predicament.
Building an environmentally and socially sustainable economy means building economic institutions that do not exploit the earth and fairly allocate the fruits of labor to those who do the work. Like a farmer who returns manure and crop residue to rebuild the soil, we must recognize that extracting natural wealth without returning natural wealth leads to environmental ruin. It’s the compost theory of sustainable economics.
A community that does not control its natural-resource base, its flow of credit, or the sources of its jobs is like a bucket with holes. Investment or purchases flow in, but because land, housing, jobs, and finance capital are absentee-owned, the community is unable to retain the value created. It becomes a colony, exporting the value of its natural resources and labor to absentee owners.
Land, Labor, and Capital. – In each of these areas, there is a history of social movements—institutions, experiments, and practices—that give us a strong vision and practical experience upon which to build a fairer economy. Organizing these institutions goes hand-in-hand with a political program that prevents or limits absentee-owners of capital from extracting the wealth created by people and natural resources from a locality. Without such a program, these alternative economic institutions will remain marginal and will ultimately be overwhelmed or destroyed by powerful corporate interests. The new global economy is built upon the notion of the unfettered ability of capital to extract resources and labor power from anywhere on the planet. The rules of the game are to crush local and national efforts to get sovereignty over their economies.
Land, Housing, and Natural Resources. – In the United States, there are efforts to build a third sector of socially owned housing—in the form of home ownership through community land trusts, limited-equity housing cooperatives, mutual housing associations, and co-housing communities committed to preserving affordable access to housing.
The community land trust movement, which is concerned not only with land conservancy but also with housing, agriculture, and other land use, is reframing the terms of our present speculative housing market, where it is assumed that land and housing are commodities. Community land trusts remove land and housing from the speculative market and ensure that they remain affordable for successive generations of home-buyers and land-users.
In the area of farmland and food production, CSAs (Community Supported Agriculture) have emerged in a number of regions of the country. Food consumers purchase shares in advance of the harvest season, providing up-front capital to farmers and pooling the risk and rewards associated with farming. Shareholders get a weekly share allocation of produce every week. There are over 1,000 CSAs operating in the United States and Canada, providing produce to over 75,000 households.
CSAs were started in Japan in the late 1960s by women’s organizations seeking to bridge food production and consumers and “put the farmer’s face of food.” In the United States, where most food products travel an average of 1.300 miles to consumers and most states import 85 to 90 percent of their food, CSAs keep food dollars in the local economy and contribute to the maintenance and establishment of regional food production.
Labor and Production. – Expanding worker ownership of enterprise has been one of the strategies to increase local control over jobs. Worker ownership can range from Employee Stock Option Plans (ESOPs), which give workers a shareholder interest in corporations but not necessarily control, to 100 percent worker-owned firms.
As discussed in the section on building assets, expanding ownership is one way to address inequalities in wealth ownership. “Over the last several years, the percentage of national income attributable to capital has steadily increased,” maintains Corey Rosen, executive director of the National Center for Employee Ownership. “If everyday employees are going to be able to share in economic growth, it is going to be through becoming capital owners, not just owners of their labor.” This is good news, though the benefits of employee asset-ownership are not equally distributed throughout the workforce, even within worker-owned firms. One hundred percent worker-owned enterprises provide the additional benefit of more opportunities for true workplace democracy.
Another way to retain value and jobs in a community is to increase social ownership or municipal ownership of enterprises. A local community-development corporation could be a substantial owner of a for-profit enterprise, ensuring community accountability.”
(THE REASON OUR MONITORING PROBLEM IS SO BAD IN THE FEDERAL RESERVE IS THE FACT THEY DON’T HAVE ENOUGH REGULATIONS ON THE BIG INVESTMENT BANKS AND WALL STREET. NOTHING EMPHASIZES THIS BETTER THAN THE BOOK WE JUST FINISHED READING TITLED “CURRENCY WARS: THE MAKING OF THE NEXT GLOBAL CRISIS” BY JAMES RICKARDS, WHERE HE SAID THERE WASN’T ENOUGH REGULATIONS ON THE BIG INVESTMENT BANKS SINCE CONGRESS GOT RID OF GLASS-STEAGALL IN 1999 AND AFTER THAT THE CORRUPTION IN THE BIG INVESTMENT BANKS REALLY TOOK OFF TO THE POINT WHERE, JUST BEFORE PRESIDENT GEORGE W BUSH LEFT OFFICE, HE TOLD HIS TREASURY SECRETARY, HANK PAULSON, YOU JUST HAVE TO SAVE THE BANKS, WHICH IS DEPICTED IN THE MOVIE “TOO BIG TO FAIL” WHICH YOU CAN GET THROUGH YOUR LOCAL LIBRARY. THE QUESTION IS—HAVE BOTH THE PARTIES COME TOGETHER FOR A SOLUTION OR ARE THEY STILL FIGHTING ONE ANOTHER? THE DEMOCRATS CAME UP WITH THE DODD-FRANK BILL, WHICH INCLUDES THE VOLCKER RULE AND THE CONSUMER FINANCIAL PROTECTION BUREAU. I FEEL CONGRESS SHOULD REINSTATE THE GLASS-STEAGALL ACT. THE PROBLEM IS THOUGH, ALL THIS WHILE, THE REPUBLICANS CONTINUE TO FIGHT ANY REGULATIONS ON WALL STREET OR THE BIG INVESTMENT BANKS. REPUBLICANS SAY, ‘JUST KEEP THOSE REGULATIONS OFF FREE ENTERPRISE’S BACK AND FREE ENTERPRISE WILL EVENTUALLY WIN.’ I FEEL THAT WILL NEVER HAPPEN, AS LONG AS THE TAXPAYERS KEEP BAILING THEM OUT, WITHOUT FIRING THEIR CORRUPT LEADERS THAT GOT THEM THERE IN THE FIRST PLACE. SOME OF THE PRIVATE BANKERS ARE SAYING THE BIG BANKS SHOULD BE BROKEN UP BECAUSE THEY ARE GETTING TOO BIG. I AGREE THAT WE NEED MORE CITIZEN ACTION BUT THERE’S NOT ENOUGH PEOPLE GETTING INVOLVED. I’M PRESENTLY A MEMBER OF PUBLIC CITIZEN, READ GOOD BOOKS AND PUT EXCERPTS ON MY BLOG SITE AND I CONTACT MY ELECTED LEGISLATORS TO CONSIDER MY COMMENTS, AS WELL AS BOOKS AND ARTICLES I’VE READ. I HOPE THEY TAKE ACTION ON THESE ISSUES SERIOUSLY, RATHER THAN TAKING MONEY FROM THE LOBBYISTS TO LOOK THE OTHER WAY.
LaVern Isely, Progressive, Independent, Overtaxed, Middle Class Taxpayer and Public Citizen and AARP Members