This is not another in a long line of often vitriolic attacks on Senator Rand Paul for his temerity to propose “auditing the Fed.” As is by now well-recognized, his proposal (S. 264, “The Federal Reserve Transparency Act of 2015”) is not about auditing the fed, but about subjecting Federal Reserve monetary policy to critique by the Government Accountability Office.

The importance of Senator Paul’s proposal is that it is the beginning of a response to the principal economic concern of the American people:  their declining standard of living owing to the erosion of the purchasing power of the dollar.  This is a monetary phenomenon, and therefore requires a correction in monetary policy—which is unlikely to occur without Congressional scrutiny.

What’s more, there is a substantial body of economic opinion that recent monetary policy is responsible both for the recession of 2007 and the unprecedentedly slow pace of recovery from that recession.  For example, here’s economist Scott Sumner:

The Fed’s ultra-tight monetary policy has dramatically increased risk in three areas: policy fragility, balance sheet risk, and financial system fragility.

Who says Fed policy is ultra-tight?  Actually, Ben Bernanke said so in 2003, when he argued that the money supply and interest rates were misleading, and that the “only” way to determine the stance of monetary policy is by looking at NGDP growth and inflation.  If you average those two variables, the past 46 months have been the tightest money since Herbert Hoover…

Examples of the snarky journalistic reception of Paul, for the audacity of questioning current monetary policy, include CNBC’s Ben White, WaPo’s Matt O’Brien, and The New Republic‘s Danny Vinik.  Forbes’ John Tamny, on the other hand, has defended Paul.

Unfortunately, Rand Paul’s own articulation of the rationale for his bill makes it easier for critics to lampoon him, and raises the question of whether he is able to be a serious reformer or is just pleasing his libertarian base.

Paul’s argument that the Fed is over-leveraged (worse than Lehman Brothers) is silly, because the Fed is not a bank.  So too is his argument that the Fed balance sheet is full of toxic assets (home mortgages).  Paul also confuses assets with liabilities.

And he gives his critics an opening when he says the Fed didn’t earn the money it used to execute quantitative easing.  But the Fed is using money it created out of thin air.

Senator Paul can be forgiven his prediction of hyperinflation (“like the Weimar Republic”); he wasn’t alone, and is in the company of some distinguished economists.  Why that didn’t happen is part of a potential indictment of Fed policy:  the proceeds of quantitative easing and the vast expansion of the Fed balance sheet weren’t allowed to touch the real economy where jobs are created.  They reside as excess reserve on deposit at the Fed, in an economically unproductive state of suspended animation. The net result is cheap loans to Wall Street, who makes a profit loaning the money back to Washington at guaranteed profits.

His statement that the Fed is printing money to lobby Congress is also just plain wrong.  The Fed does derive its operating funds from income on the debt it holds, which was purchased with created funds.  The Fed should be required to have its budget authorized by Congress, like any other federal government agency.

Critic Cullen Roche says, “Paul is contradicting himself because the Fed is earning profits on assets that the banks and the private sector would otherwise earn,” but in this, Paul is right.  The interest payments made by the Treasury would be more economically productive if paid to private debt holders.

As for the Fed paying the Treasury $80 billion a year: where did that money come from?  The Treasury.  So it’s not like the Fed is a great generator of wealth.  In fact, the Fed remits to the Treasury funds after deducting whatever it wants as an operating budget and paying interest to banks to idle their funds in reserve accounts.  So on the whole, it’s not such a great deal for the American taxpayer.

Three elements of Paul’s argument deserve loud and sustained applause.

One, his observation that the dollar has lost 96% of its value over the past hundred years is an important critique of monetary policy.

Two, Dodd-Frank, and in particular the campaign by the Fed to “de-leverage” (remove risk) financial institutions under Dodd-Frank authority is “pummel[ing] our small community banks with crippling regulations” (actually the big banks have it worse, and this is killing credit availability).

Three, we don’t know how much the Fed overpaid for its debt portfolio, and we know only generally whom it overpaid.  Paul calls this cronyism, probably inaccurately, but it is the case that the Fed by definition overpaid holders of debt in order to drive down interest rates.  Selected agencies reaped a huge windfall.

Sen. Paul is on to something.  Here’s a plea to Sen. Paul to refine his Fed argument, make it more serious, and use it, not only to win the election, but also to restore America’s broken economy.

Steve Wagner is the founder and president of QEV Analytics, a Washington DC -based public opinion research firm.