Richard Fischer, president of the Dallas Fed, caused rejoicing in the markets and doubtless several thousand more speculative house purchases Tuesday by suggesting that the Fed’s tightening cycle was “in its eighth inning.” One is again forced to conclude that central bank policy in a democratic fiat money system inevitably tends towards inflation and the looting of middle class savings, and to wonder whether removing the power of the Fed’s stooges might do any good.

William McChesney Martin, Fed Chairman 1951-70, famously remarked that the job of the Fed Chairman was to “take away the punch bowl just as the party gets going” but regretted at the end of his life that he had not in fact done so. Lyndon Johnson on a number of occasions in 1964-68 invited Martin out to the ranch and “persuaded” him with his customary delicacy that Johnson’s profligate Federal spending policies did not require an increase in interest rates, even though the U.S. economy was clearly overheating. Martin explained later that by acquiescing in Johnson’s browbeating he “preserved the independence of the Fed” which might otherwise have become politically unpopular. Certainly the only occasion in which Martin exhibited backbone in opposing a President, in 1969 against the less pathologically overbearing Richard Nixon, resulted in his removal within a year and replacement by the complaisant Arthur Burns.

On some occasions, Presidents themselves have understood the benefits of a restrictive monetary policy. Dwight Eisenhower made Martin’s job easy, by allowing him to raise interest rates early in 1960 with no inflation visible, thus dooming Nixon’s 1960 presidential bid. Jimmy Carter, under severe pressure from the bond and currency markets, removed the feeble William Miller in 1979 and appointed the stern anti-inflationist Paul Volcker. Ronald Reagan famously dealt with the economic pain of Volcker’s tight monetary policy in 1981-82, then reaped the benefit thereafter in lower inflation and economic growth that was both soundly based and rapid. Notoriously, his successor George H.W. Bush railed repeatedly against the much lesser degree of pain from Alan Greenspan’s moderately tight monetary policy of 1989-92, and has whined ever since about its effect on his reelection chances.

Traditionally, Republican-appointed Fed officials were restrictive on money supply and Democrat-appointed officials expansionist. This changed in the 1980s when Reagan-appointee Preston Martin, Fed. Vice Chairman, was notably critical of Volcker’s restrictionist approach. In the 1990s some Fed officials appointed by Bill Clinton, such as Edward Gramlich (who recently announced his retirement) were fairly restrictionist. However since 2000, the Fed officials appointed by George W. Bush have been notably expansionist, with Ben Bernanke in 2002 propounding the bizarre theory, unsupported by any evidence, that the U.S. was entering a period of damaging deflation, and now recently appointed Dallas Fed President Richard Fischer expounding his belief that negative real interest rates were in reality contractionary in a period when the economy might be slowing.

In the short term, inflationists such as Bernanke and Fischer get their name in the press, together with admiring remarks by the stock-shills of Wall Street, and no doubt do their cocktail party cred. no end of good. In the long term, their insouciance about the job they are being paid for bodes very ill indeed for the United States and world economies.

Wall Street wants an endlessly expansionary market – it gets paid for making money for investors, and for raising financing for corporations; both are much easier if the market is going up. The losers, those who buy at high prices and watch their retirement savings devastated in the next downturn, will blame the downturn not the rise for their plight.

Washington wants an endlessly bullish housing market – gradually rising house prices and readily available finance make millions of voters feel benign towards their incumbent representatives. The losers, those who are unable to buy shelter because of excessive house prices, or who lose their overpriced houses in the next recession, are largely inchoate and don’t realize they are being discriminated against.

Main Street wants cheap and readily available credit to expand its small business or more often to help pay for that vacation, home extension or new SUV. Like the losers from an endlessly rising stock market, the losers from endlessly available cheap credit suffer some years later and blame the recession not the preceding over-availability of credit for their travails.

In short, there is no constituency whatever for sound money, at least in the short term. Easy money may cause inflation, but it does so very slowly and almost invisibly, as the late 1960s and the past decade have demonstrated. Even when inflation has appeared and is running at a stubborn 4-5 percent (the true current figure, suppressed by statistical finagling in the Bureau of Economic Analysis) there is little public pressure for it to be corrected, since the losers from inflation lose from it gradually, and are generally politically unorganized — savers and those on fixed incomes. Of course, in the long run inflation turns the country into Brazil or Weimar Germany, but few look that far ahead.

Given this fact, it is not surprising that in an era of increasing populism, monetary policy gets steadily sloppier. Lessons learned in the 1980s are forgotten only 20 years later, as Fed officials compete for who gets the most flattering attention on the talk show circuit. In the 1980s, the United States had a President educated in pre-Keynesian economics and a Fed Chairman of unimpeachable integrity and great strength of character; the two combined to produce a deflationary and highly effective monetary policy. The period since 1988 has shown that a repetition of this combination is extremely unlikely – indeed impossible, since the intellectual atmosphere of the 1928-32 Eureka College economics department is one with Nineveh and Tyre.

The ideal solution in the long term would be a return to the Gold Standard, which makes the size of the monetary base extrinsically determined, and thus removes most of the opportunities for meddling from the hands of fallible central bankers. (We could remove all such opportunities by abolishing the Federal Reserve System, and reverting to the United States’ pre-1913 arrangements, but the Fed’s other roles as banking regulator and crisis manager are probably too valuable to lose – certainly the 19th Century Bank of England was not without its uses.)

At a minimum, in a gold standard economy, an insouciant inflationism such as Greenspan followed in the late 1990s would have brought an exchange crisis much more quickly than it did. This would have burst the bubble and probably saved the economies of deluded countries such as Argentina whose currencies were tied to a dollar anchor that was unattached to reality.

However, in the world of 2005, return to the Gold Standard is not a practicable alternative. This is not for the vulgar reason of its “political impossibility” – the art of good statesmanship, indeed almost its sole purpose is to institute reforms that are necessary but politically impossible.

It must though be recognized that with world population increasing at more than 1 percent per annum, and the world supply of gold growing at much less than this, the Gold Standard is excessively deflationary – as indeed it was already proving in the early 20th century, as population growth rates began to outpace gold supplies. Thus a return to gold must await a stabilization of world population, unlikely this side of 2050 even with the best policies.

Hence the best alternative is an automatic regulator, a rule of monetary control locked into the U.S. monetary system, by constitutional amendment if necessary. In theory, inflation targeting could achieve this; in practice, the subornation of the consumer price index and other U.S. economic statistics by the fraud of “hedonic pricing” indicates that the statistical agency of a government dedicated to inflation will simply manipulate the figures in order to hit the inflation target.

Much better instead to have a rule limiting monetary growth, of as broad an indicator as possible, probably M3, to a level around 3%, the long term growth potential of the U.S. economy. This kind of targeting was followed by Volcker in his victory over inflation in the early 1980s; it was abandoned by Greenspan, on the spurious even if statistically correct rationale that money supply growth jumped around in the short term for reasons unrelated to inflation. As in U.S. monetary policy as a whole, the supposedly conservative Greenspan in this abandoned the sound principles of the Democrat Volcker.

But then, fashionable populism, however erroneous, will always win you plaudits on the talk show circuit.

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(The Bear’s Lair is a weekly column that is intended to appear each Monday, an appropriately gloomy day of the week. Its rationale is that the proportion of “sell” recommendations put out by Wall Street houses remains far below that of “buy” recommendations. Accordingly, investors have an excess of positive information and very little negative information. The column thus takes the ursine view of life and the market, in the hope that it may be usefully different from what investors see elsewhere.)

This article originally appeared on United Press International.