Central Planning at the Federal Reserve

Sheldon Richman of the The Future of Freedom Foundation recently released an article in which he attacks the Fed as a central planner that is destroying civilized society.  In the article he makes some curious comments:

It is standard operating procedure (though of course illegitimate by free-market standards) for a Fed chairman to inflate the money supply supposedly to provide increased liquidity during an economic crisis. It is then left to the market (distorted, to be sure) to “allocate” the money. What’s new is that under the Bernanke Fed’s self-expanded powers, the central bank is allocating credit to chosen financial institutions, including insolvent rather than merely illiquid ones. That is apparently unprecedented in the United States.

Just as central planning of the economy in general, besides violating individual freedom, can’t serve the general interest because the planner necessarily lacks the required information, so it is with the central planning of the allocation of credit. Bernanke cannot know better than the collective intelligence of the market which firms should get capital and which shouldn’t. Creating credit out of thin air in order to allocate it according to a central plan is an assault on the market. But it is also an assault if Bernanke “merely” moves existing capital from one part of the market to another. The new powers are independent of the Fed’s power to inflate.

Richman is spot on when he says central planners lack the information necessary to make correct decisions about allocating resources in a society and the fact that such actions violate individual freedom, but I find it odd that he makes a distinction between the Fed’s power to inflate and the Fed’s power to selectively allocate credit.

Consider that if the Fed creates inflation by propping up bank reserves and buying up government debt, it is actively engaging in the allocation of credit.  The fact that Bernanke has now decided to play favorites with private corporations is simply a twist on how the Fed engages in the central planning of credit.

Think about it for a minute.  If a person has the ability to print money at will, as soon as they give that money to someone they ARE engaging in the selective allocation of resources.  In our fascist society, debt is money and money controls resources.  There is no way to separate the two.  Counterfeiting through fractional reserve fraud is itself a form of selective central planning when it is conducted by an institution that has a monopoly on the issuance of currency.  Whoever the Fed chooses to give that new money to automatically becomes the beneficiary of centrally planned credit.  There is no difference if the receiving institution is government or a private bank.