Operation twist-the-truth: How the Federal Reserve misrepresents its history & performance

At its hundredth anniversary, the Federal Reserve System’s powers are greater than ever, its asset holdings make it far larger, by assets, than any of the world’s profit-oriented financial firms, and it commands worldwide prestige.  But what has this prestige got to do with the Fed’s actual record?  “No major institution in the U.S.,” Milton Friedman observed some years ago, “has so poor a record of performance over so long a period, yet so high a public reputation,” and that assessment is no less valid today.  This isn’t to say that the Fed itself deserves no credit for its success, for it has played a major part in fostering the public’s favorable opinion of it through its official publications, exhibits, and webpages aimed at the general public, as well as by means of public lectures and testimony of its representatives. 

Here I survey the ways in which the Fed misrepresents both its history and its performance.  In doing so I consider only its writings and other works aimed at the general public, and not research published by Fed-employed economists for the use of other researchers, which, despite being routinely vetted by the Board of Governors, reflects the idiosyncratic opinions of individual researchers, and carries disclaimers to that effect.   Indeed, I frequently rely on such research in identifying misinformation in works by other Fed staff and officials that are intended for general readers.  Among these I emphasize pronouncements and publications of the Board itself, because such pronouncements and publications may be properly regarded as reflecting the views of “the Fed” as such, rather than those of its employees.   I also give special attention to the public testimony and lectures of Ben Bernanke, the Fed’s chairman at the time of this writing, both because he also may be regarded as a spokesman for the Fed itself, and because Bernanke’s status as a highly-regarded expert in monetary history gives special weight to his statements regarding that subject.