Elizabeth Warren and the Federal Reserve: Dual Faces of Socialism
President Trump often warns the nation about the perils of encroaching socialist policies from the political left, resolving that, “America will never be a socialist country.”
Despite the President’s admonition, socialistic policies remain a constantly threatening tide against our prosperous but ever-vulnerable U.S. economy. Paraphrasing Ronald Reagan, freedom is never more than one election away from extinction.
That threat only became more salient in recent days, as Senator Elizabeth Warren (D-Massachusetts) became the new odds-on favorite to challenge President Trump.
Senator Warren’s array of proposals would cut to the very core of what it means to be an American. Among her panoply of destructive proposals, for example, is recently drafted legislation to empower the Federal Reserve to operate its own real-time payments system. That would completely upend the fundamental relationship between the federal government and our personal finances.
By way of background, real-time payment systems certainly provide important benefits for our economy, facilitating digital, electronic, virtually instantaneous consumer and business financial transactions that revolutionize payment efficiency and cost-effectiveness in our digital age. There’s only one problem: the private sector already effectively serves that need. The Clearing House currently operates a functional system linked to half of all U.S. checking account volume, and has done so since 2017.
On July 24, Senator Warren introduced legislation intended to “clarify that the Federal Reserve has the existing authority to build a real-time payments system and requires the Fed to implement its own process.”
Note that deliberate use of the word “clarify,” which signals that the Fed has never in reality had this power before. Indeed, the Monetary Control Act of 1980 seems to prohibit the central bank from doing so. Nevertheless, Warren’s bill would legislatively empower the Fed’s unchecked ambitions, allowing the central bank legal cover to conduct real-time payment operations.
Even more alarmingly, however, the Federal Reserve appears ready to jump in regardless of what happens to her bill. On August 5, the Fed announced its own intent to launch a new central bank-operated real-time service.
Although hardened socialists like Warren never encounter a government centralization they don’t like, the rest of us know that bureaucracies like the Fed don’t claim a history of doing things well or on time. Delays, accidents, and spiraling unanticipated cost almost always become the norm.
In fact, we’re already witnessing that phenomenon.
During a late September Senate Banking Committee hearing on the topic of real-time payments, Senator Doug Jones (D-Alabama) confirmed that the Federal Reserve’s real-time payments system is already falling into a downward spiral of inefficiency. After asking a representative from the Federal Reserve whether they have any benchmarks in place to complete the project, which they anticipate completing by 2024, the official ducked the question, eventually confirming that they don’t.
As with healthcare or any other product, consumers shouldn’t be stuck with just one bad public option. That’s why we must ensure that the Fed doesn’t monopolize the real-time payments industry, as it has with so many others.
Unless more free-market advocates in Washington interrupt this effort, however, that very well may occur.
During that same Senate hearing, Senator Pat Toomey (R-Pennsylvania) discovered that, due to the central bank’s announcement, fewer consumers have access to real-time payment services. Responding to Toomey’s questioning, a witness admitted that the Fed’s proposal has created a chilling effect on the private marketplace, with private companies holding back and afraid to invest in technology that could be rendered useless by the Fed’s intervention. As a result, those currently without access will be forced to wait even longer to become connected to a real-time payments system.
The Trump Administration has the power to investigate the potential negative effects of the Fed’s planned action.
According to former Office of Management and Budget (OMB) economist Ike Brannon, the Congressional Review Act authorizes the OMB Office of Information and Regulatory Affairs to review any significant new regulatory action before it is proposed. And since the Fed initially bypassed running its proposal by OMB, Director Mick Mulvaney’s office can and should require accountability by examining the process.
Specifically, OMB can provide stability and certainty to the real-time marketplace by outlining the consequences of the Federal Reserve’s actions – the costs and potential pitfalls. That’s the only way to ensure that the central bank does not make more serious bureaucratic mistakes that greatly affect the health of the economy that the Trump administration has helped rejuvenate.
President Trump rightly cautioned the American people against falling into the trap of socialism, and now he possesses a perfect opportunity to make good on that commitment. There’s no reason to give Elizabeth Warren, government bureaucrats, and other socialists a big centralized-government victory just as election season begins.
Instead, the Trump administration must use its authority to protect American consumers and our free-market economy.
Jeff Mazzella is president of the Center for Individual Freedom