President Trump again has put a wide swath of the establishment types in a state of fear for another of our “venerable” institutions. What could he be thinking? Steven Moore and horrors Herman Cain considered for the Federal Reserve Board? Why they don’t even have a PHD among them. Worse he is playing politics with appointment by selecting people generally agreeing with him on economic policy. They see the Fed as a revered independent agency led by highly educated elites delivering stable money and full employment from on high. Contamination with these two louts will taint this wonderful institution with mediocrity possibly leading to failure. We have trouble in River City.
Before everyone hyperventilates, remember we’re talking about the Federal Reserve. You know, the people not having a clue the “Great Recession” was on the horizon. The ones by keeping interest rates so low it forced people in need of returns worldwide to buy riskier instruments such as the Collaterized Mortgage Obligations containing the subprime mortgages. That rocked the world economy. Even when they woke up, their answer was to buy trillions of dollars worth of debt with newly created money driving interest rates near zero. The result was the slowest recovery ever recorded after any recession or depression. This even with Obama’s near trillion-dollar stimulus. At best the Fed has a hit or miss record since its inception. We warned of the continuing destabilization of the economy if interest rates continue below normal in our post Free Capital to Finance “More” in our series “The long Journey to More.” The Fed never seems to be aware of the bubbles it creates till they burst.
Tightening or loosening the money supply at the wrong time may actually have happened more often than they got it right. As Milton Friedman put it, “No major institution in the US has so poor a record of performance over so long a period as the Federal Reserve, yet so high a public reputation.” And this was said before its “Great Recession” failures. It would seem this is an organization in clear need of fresh ideas to achieve positive performance.
Instead, Moore and Cain have been greeted with an avalanche of objections centering on being unqualified and alleged personal failings. Moore spent many years as an economic writer for the Wall Street Journal, so he is well aware of what is entailed in Fed policy. Cain a successful business executive, served on the board of the Kansas City Fed so he also knows what is involved. Yet, the elites led by such academics as Harvard’s N. Gregory Mankiw writing in the New York Times lambasted both men for the lack of proper pedigree. He did this by saying, “We may not have many great public institutions left. But the Feeder reserve is one of them. Let’s keep it that way.” Talk about being disconnected from reality. Not content with his elitist attack, Mankiw resorted to personal attacks including reports among other things “…that Mr.Cain engaged in sexual misconduct.” Descending to the depths of unsubstantiated claims achieved in the Kavanaugh hearings weren’t acceptable then and have no place here.
At least some of the Duo’s detractors made policy objections. Both men at one time or another entertained the idea of adopting some understandable standards to govern monetary policy. Some pointed out Mr. Cain even had nice things to say about the Gold Standard. How crazy is that? Well, maybe not so crazy. Judy Shelton an economist the Wall Street Journal Editorial page basically endorsed for a Fed seat saying, she “..would bring intellectual diversity and heft.. to the Fed” wrote favorably of our economy under the gold and gold exchange standard this week in the WSJ. John B. Taylor of Stanford has proposed what is known as the Taylor Principle to give a constant to monetary policy. It may be hard to say what standards would work best but who can say they wouldn’t be better than the helter-skelter manner the Fed has operated. A wide-ranging discussion of policy from different perspectives might be just what the doctor ordered.
The critics almost in unison claimed the potential appointments would be blatantly political. That’s rich. When aren’t Presidential appointments political. Every potential nominee for the Fed Board has a political point of view. Some even align their views to those of their party to raise their profile in it. For instance, how many potential Democratic nominees are on record as favoring raising the minimum wage? As we pointed out in our post REAL ECONOMISTS DON’T DO MINIMUM WAGE the argument for always mandating a higher and higher wage floor may be a politically popular idea in some circles but makes absolutely no economic sense. Should those espousing such ideas be banned from appointments?
Some say these potential appointments might threaten the Board’s independence. Two out of seven aren’t going take over anything. While both have backed the President on many things, they also have pointedly differed on some. For instance Moore doesn’t support large-scale tariffs. In any case, a 14 year term allows for individual members a large degree of independent thinking.
What is really at stake here is the widening gap between the public’s views of things and those of our “elites.” The dismissive nature towards other perfectly good people, ideas and policies put forth by those outside their”titled” society has in large measure brought forth the reaction that put Donald Trump in the White House. We see this on college campuses, in large sections of the press and institutions both governmental and outside. Mr. Cain has already removed himself from consideration. This could mean an elite victory over an outsider or more likely a diminish the public’s view of their worth. This will only add to the growing populism. The further our elites get from open discussion the greater danger to our nation. Dismissing the ideas and policies of those you view as “commoners” out hand because of their lack of a title or proper background doesn’t sound like America. Lotsa luck Steve Moore.