Economics professor discusses Federal Reserve

George Selgin, University of Georgia economics professor, discussed the declining usefulness of the Federal Reserve System to a large audience Feb. 28 in the College of Business Auditorium.
In his presentation, “A Century of Failure: The Case for Ending the Fed,” Selgin showed several graphics that described declining monetary data in the United States economy and unemployment rate changes. The charts illustrated the correlation between money and unemployment. The unemployment was low in the United States during World War II, according to the charts.
Selgin focused much of his presentation on “war years,” from 1914 to 1945. He said the amount of money was high in America, but that it quickly declined because of the start of World War I. Selgin said the amount of money did not rise until about 1945 because the United States had just gone through the Great Depression and World War II.
He said the Federal Reserve reminds him of “The Wizard of Oz.”
“The Federal Reserve has created a type of aura about itself that causes people to think that it is really a wonderful institution capable of all kinds of good things,” he said.
Selgin said his view of the Federal Reserve is similar to the scene in the movie when Toto pulls back the curtain and reveals that the wizard is just an ordinary human hiding behind a false identity.
“Stop thinking about the Federal Reserve as the wizard and start thinking about it as the man behind the curtain that pretends to be a wizard so we can think realistically about its actual performance,” he said.
Selgin presented a slideshow that explained the Federal Reserve’s mission.
The first goal of the Federal Reserve is to “promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” The second goal is to “contain financial disruptions and prevent their spread outside the financial sector.”
Selgin said the Federal Reserve was founded in 1914 as a result of the Panic of 1907.
“The monetary system that existed before the establishment of the Federal Reserve was itself highly imperfect,” he said.
He said the structure of the Federal Reserve, as the nation’s centralized banking system, is not much better than the previous monetary system.
Selgin said there are two kinds of deflation: bad deflation that shows demand sinkage and good deflation that shows the supply expression. He said the Federal Reserve has avoided good deflation.
“Before the Federal Reserve was created, everything was a gold standard,” Selgin said. “There were more years where prices fell than when they rose.”
He said dollar amounts are valued at one-twenty fifth of what they once were.
Junior Chris Webb said the presentation provided him with a new understanding of America’s economic system.
“Professor Selgin showed me that the Federal Reserves are not really helping the monetary issue, but helping to destroy it,” he said.
Selgin has written or edited seven books including “The Theory of Free Banking” and “Good Money: Birmingham of Modern Coinage, 1775-1821.”
He has authored more than 60 academic articles.
Selgin’s research covers a broad range of topics including monetary theory, monetary history, macroeconomic policy and the history of monetary thought.
His writings have appeared in The Christian Science Monitor, The Financial Times, The Wall Street Journal and other popular news outlets.
Selgin holds a Ph.D. in economics from New York University and is a senior fellow at the Cato Institute.

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