A charlatan whom the conservative movement pretends is an expert.
Stephen Moore, the conservative think tanker and television pundit whom President Trump had tapped for a position on the Federal Reserve Board of Governors, has withdrawn from consideration, according to a presidential tweet early this afternoon.
Steve Moore, a great pro-growth economist and a truly fine person, has decided to withdraw from the Fed process. Steve won the battle of ideas including Tax Cuts….
Coming just a couple of hours after Moore proclaimed himself “all-in” on the quest for confirmation, the withdrawal is part of the same slipshod process that led Trump to name him in the first place.
The larger story, however, is that President Trump would like the Federal Reserve to keep interest rates low to help the economy grow faster and help him win reelection. He also thinks underqualified would-be flunkies such Moore and former Godfather’s Pizza impresario Herman Cain are the ones to help him do it.
Keeping interest rates low is not exactly an out-there idea politically or economically, though it is certainly unusual for a president to make his views about Fed policy so vocally known. But Trump didn’t find well-qualified people whose views on the merits match up with what he wants to do. Instead, he started pushing Cain and Moore. But now both candidacies have crashed and burned.
For those who value the Fed’s cherished independence, it’s a well-deserved victory. But it’s striking to contemplate the extent to which the integrity of key American institutions currently seems to be safeguarded more by Trump’s flailing incompetence than by any larger principle. Meanwhile, held hostage in all this is the actual American labor market — which has recovered painfully slowly from the Great Recession for years by Fed timidity in a way that has made the institution vulnerable to Trump’s attacks.
The Federal Reserve has a complicated governance structure featuring a board in Washington and 12 regional banks, each of which has its own board.
How it works in practice has evolved considerably over the years, with some ebb and flow in the theory and practice of Federal Reserve independence. That independence reached a kind of low point when Richard Nixon appointed Arthur Burns to run the Fed during his first term and then sought to control Fed policy through both overt and sleazy means. Nixon’s basic goal was to keep the economy hot through his 1972 reelection campaign, even if that meant running some risk of inflation. Inflation, of course, became a major problem in the mid-1970s. As inflation came back under control in the early 1980s, the conventional wisdom became that central bank independence was key to avoiding it.
The theory here is that an incumbent president will always want to err in the direction of a little less unemployment now even if it means a little more inflation. And while on any given day that may be a reasonable trade-off, over the long run, it just inevitably means a lot of inflation. And, as the theory goes, in the end, this won’t even get you sustainable low unemployment — just the dreaded “stagflation” of the late 1970s.
During the 1980s and ’90s, this evolved into a norm of Fed independence that had grown so strong that Obama administration economic policy officials would routinely decline to comment at all on monetary policy, whether on or off the record.
Still, at the end of the day, the Fed chair and the other members of the board are presidential appointees. Trump is not exactly a huge respecter of norms or big believer in independence. He wants a Fed that will do what he wants.
