//Trump’s Moore/Cain sideshow is precisely what the Fed doesn’t need right now

Trump’s Moore/Cain sideshow is precisely what the Fed doesn’t need right now

Who knew the Federal Reserve could be so much fun? Fed officials typically go out of their way to be equivocal in their views and boring in their language, because they recognize the dangers of misinterpretation and the awesome power they wield. I mean, this is a world where the word “patience” can move markets and economies. But now — well, the world’s most important central bank is getting a dose of wackiness, thanks to Donald Trump. What a cut-up.

Clearly seeing two vacant Fed governorships as a chance to exercise his comedic instincts, the President has floated a couple of brazen partisans as potential nominees. One is Stephen Moore, a Trump economic policy adviser during the 2016 campaign, who served as his “surrogate” on campaign events. Moore’s bona fides don’t end there: he’s also the guy who co-authored (with Arthur Laffer) Trumponomics, a paean to the president and an exercise in what one conservative reviewer (economist N. Gregory Mankiw) called “economic tribalism”; who suggested as a CNN contributor that many of the 800,000 federal workers furloughed during the longest government shutdown in history considered it a “paid vacation”; who claimed that Trump’s tax cuts and deregulation would result in at least four-per-cent GDP growth for five years (they haven’t) and push down the budget deficit (it rose by 17 per cent in fiscal 2018); and who is currently a “Distinguished Visiting Fellow for Project for Economic Growth” at the conservative Heritage Foundation, where he has said he’s working on a project about “how President Obama has discredited liberal ideas more than anyone.”

Does anyone seriously think that Moore and Cain represent the best and the brightest?

While Moore acknowledges he is no expert on monetary policy, he does have views on it that are both strongly voiced and subject to change. During the recession, Moore warned of the dangers of accommodative policy, but today he argues (like Trump) for looser money. So it looks like, should he end up at the Fed, Moore would advocate for less monetary stimulus during recessions and periods of high unemployment, and more of it during economic expansions and periods of full employment like the one the U.S. is enjoying now. To hell with John Maynard Keynes, indeed!

At least Moore has some economic credentials. (He holds a master’s degree in economics, which doesn’t qualify him to be called an economist by the usual definition, but let’s not quibble – Powell doesn’t have a PhD in economics, either.) Herman Cain, the other fellow floated by Trump for a Fed governorship, has a master’s degree in computer science, and his achievements are largely in business and politics. Yet he does have some experience with the Federal Reserve System. When he was CEO of Godfather’s Pizza back in the ‘90s, he served as chairman of the Federal Reserve Bank of Kansas City — a not-altogether-vital “role that is often given to local business leaders,” as the New York Times has noted.

Back then, he reportedly was an “inflation hawk,” who argued for higher rates, but now (like Moore) he has pulled a 180 and has said he wants to fight deflation, not inflation. In the past, Cain has also proselytized the virtues of returning to the gold standard, which would effectively constrain monetary policymakers’ power to influence the economy through, you know, monetary policy.

Crazy economic views, however, are clearly no barrier to receiving praise from Donald Trump, who called Cain “a truly outstanding individual.” On that note, there’s the little matter of allegations of sexual misconduct from several women during Cain’s failed bid for the 2012 Republican presidential nomination. He has denied all of them, but they will no doubt come up at his Senate confirmation hearing, should he get that far.

With his repeated criticisms of Powell and the Fed, Trump has already opened the door to political interference; with these nominations, he would walk right through it

Unsurprisingly, however, Cain’s partisan credentials are impeccable. For instance, he set up a political action committee called America Fighting Back, “created by a group of President Trump’s most committed supporters to fight (the) vile and uncalled for (sic) propaganda” that accosts Americans every day with “a stream of disrespectful, dishonest and destructive news about the 45th President of the United States,” according to its website. AFB “is chaired and spearheaded by Herman Cain one of the most masterful communicators of our time.” (Apparently, he or his people aren’t that masterful at proofreading.)

The Cain thing is reportedly too much even for Senate Republicans: the current thinking is that they will ixnay him but let in Moore, so as to give Trump at least some of what he wants. Some have also pointed out that there are seven governors at the Fed and 12 members on the rate-setting Federal Open Market Committee, so the presence of one or two Trump lackeys is unlikely to change policy.

Feel better? You shouldn’t.

For starters, the Moore/Cain sideshow is precisely what the Fed doesn’t need right now. Like other central banks, it is on the horns of a real dilemma. On the one hand, it’s found that easy money is much better at stimulating asset prices than at stimulating the real economy; on the other, recent experience has shown the economy to be far more sensitive to increasing rates than lowering them. And even with full employment, there is no sign of inflation approaching the two-per-cent target. If there’s an easy solution to this dilemma, we haven’t seen it yet.

So perhaps it is time for some fresh thinking, and there must be at least two smart, qualified, independent and available people out there who could provide it. But does anyone seriously think that Moore and Cain represent the best and the brightest?

A more general but no less legitimate concern is that the appointment of either of these guys would undermine the principle of central bank independence, ipso facto. With his repeated criticisms of Powell and the Fed, Trump has already opened the door to political interference; with these nominations, he would walk right through it. And yet White House economic adviser Larry Kudlow has said, with a straight face, “we’re not trying to damage the Fed’s independence.”

It’s so funny I forgot to laugh.

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