It's true, as Matt Yglesias says, that the Federal Reserve doesn't care if you lose your house or are fired from your job. But then, it's not really supposed to. It's an institution developed to guard against macro-level disruptions in the money supply. Indeed, liberals really aren't giving themselves enough credit for the role their institutions and innovations are playing here. The Federal Reserve was originally a Republican idea put forward by Nelson Aldrich, then the leader of the Senate Republicans and a politician with close ties to the Eastern banking establishment. Aldrich wanted a private bank with little federal influence. There would be a Board of Directors and maybe, as a concession, government would have some representation on it. Progressive Democrats in Congress blocked the proposal and substituted one of their own: A reserve system operated by the government and insulated from the financial sector. The Democrats passed their bill, and Woodrow Wilson signed it. The New York Times was not pleased. "[The Federal Reserve Act] reflects the rooted dislike and distrust of banks and bankers that has been for many years a great moving force in the Democratic Party ... The measure goes to the very extreme in establishing absolute political control over the business of banking." Reads like the sort of editorial the Wall Street Journal publishes on days ending with "y," doesn't it? Criticism aside, the Federal Reserve has been working pretty well. It's shown itself independent of Wall Street. It's probably saved us from collapse on four or five occasions this year. It's a good (though flawed) institution, and proof of a longstanding progressive premise: For the private market to function, there needs to be an overarching regulatory framework insulated from the incentives of quarterly profits and concerned with the public good. The market, in other words, needs the government. Let the laisez-faire types hold the reins for too long and the whole thing will tumble in on itself. After all, this isn't the first time liberal ideas rode in to rescue American capitalism. We saw this in the 80s, we saw it in the 30s, and the stability between those crises had much to do with the framework constructed by liberals in the New Deal. Remember that next time you hear some conservative going on about the glory of American capitalism and whinging about the strictures liberals impose on its self-destructive autonomy.
