Small-d democrats that we are, Americans are not often impressed by technocrats. One institution is a necessary exception — the Federal Reserve (the Fed), where coldly apolitical policymakers manage the U.S. money supply with integrity, common sense and the best data analysis available. It is a credit to the country that Fed policymakers are able to follow objective evidence where it leads and to put aside ideological beliefs and a priori suppositions.
Enter Donald Trump. It is no secret that the president has chosen many unqualified partisan hacks for key positions in the government. Almost universally, economists of all stripes have criticized his most recent appointment, campaign adviser and conservative economic commentator Stephen Moore, as manifestly unqualified to serve on the Fed’s Board of Governors.
Why? If your goal is to stabilize the macroeconomy, then Moore’s policies put you on exactly the opposite course. If instead your goal is to conduct monetary policy based on the direction in which the political winds are blowing, then his policies make perfect sense.
The U.S. Congress gave the Fed, the world’s most powerful financial institution, the dual mandate to promote maximum sustainable employment and low, stable inflation along with moderate long-term interest rates. Especially since the tenure of Paul Volcker, who served as chairman of the Fed in the 1980s, the Fed has also worked hard to earn the trust of financial market participants to operate with strict, aseptic political independence.
Politicians almost always have the incentive to push for lower interest rates, especially leading up to elections. Easy-money policies squeeze out extra growth and reduce unemployment in the short run, which give incumbent candidates a leg up, but if left unchecked, they can lead to inflation, especially in an already “hot” economy. It is for this reason that we need experts divorced of any political agenda to take away the punch bowl when the party gets started, or else we could be carting around wheelbarrows of cash à la Weimar Germany.
Herein lies the reason why a Moore appointment would damage the Fed’s Board of Governors: he is a political operative and as committed a Trump sycophant and spin doctor as they come. During the Obama administration (when price indices were actually falling due to the Great Recession), he was an inflation truther who claimed that hyperinflation was right around the corner. Now, despite clear empirical evidence to the contrary, he claims that price indices are falling and that the Fed must apply immediate monetary stimulus. Both policy views are transparently politically motivated and also precisely opposite of what any of my colleagues on the Wake Forest College Fed Challenge team would recommend.
Moreover, Moore simply doesn’t know his economic stuff, and neither does he let reality get in the way. Economists across the political aisle all agree about how loose he plays with the facts. Greg Mankiw, a mainstream conservative economist and advisor to George W. Bush and Mitt Romney, called Moore’s approach to policy “over-the-top,” “bereft of nuance” and largely offering “simplistic, misguided advice.” Paul Krugman, left-leaning winner of a Nobel Prize in economics, said in a New York Times column that by appointing Moore, the Trump administration tends towards both kakistocracy — rule by the worst — and hackistocracy — rule by the ignorant and incompetent. And Justin Wolfers, faculty member at the University of Michigan and a senior fellow at the Peterson Institute for International Economics, said, “More than possibly any other economist in modern America, he has a track record of getting the big issues wrong. Not just occasionally, but time after time.”
Indeed, Moore has been wrong about almost everything. In 2014, he wrote an op-ed for the Kansas City Star about the superior economic performance of low-tax states that was so jam-packed with erroneous numbers that the editorial page editor vowed to never again accept an op-ed from him. But even that case is nothing compared to the terrible ideas that drive his views on monetary policy. Recall that Moore’s agitation for looser money is motivated by his entirely false claim that the U.S. economy is experiencing deflation. There are three major metrics of price changes used by credible economists: the consumer price index, the personal consumption expenditures (PCE) price index, and the “core” PCE price index (which excludes food and energy prices, which can add volatile and irrelevant “noise.”) Currently, all three show slow but steady year-over-year increases.
Moore explains this away by arguing that the Fed should focus on commodity price changes (i.e., things like the price of oil) rather than the above indices, and he cherry-picks certain commodities with weird, anomalous fluctuations in price that are certainly driven by shocks, so they tell us almost nothing about whether there is actually too little money chasing too many goods or the other way around. For example, Moore cites the steep decline in U.S. soybean prices as evidence of economy-wide deflation. But as most thinking people are aware, the reason that U.S. soybean prices are down is because of Trump’s self-made trade war — China has decreased its purchases of U.S. soybeans in retaliation for the recent slew of tariffs. Should the Fed, a steadfastly independent entity, cut rates to prop up soybean prices as damage control for the White House’s blundered trade policy? Moore seems to think so. Worse, Moore doesn’t even understand the genesis of his own dreadful ideas — he tried to dignify his advocacy of tying interest rates to commodity prices by calling it “the Volcker Rule.” But that is nothing close to the real Volcker Rule (named after the respectable former Fed chairman), which was actually a regulation prohibiting banks from engaging in certain investment activities with their own accounts.
Trump has floated the notion that he will appoint to the world’s most powerful central bank a man who is incapable of using the correct data to make the simplistic determination of whether prices are going up or down, and who, by his own admission, “will be on a steep learning curve about how the Fed operates.” But the scariest part is that if the White House’s maladroit economic policies precipitate another recession, we might not have a Ben Bernanke or Janet Yellen at the wheel. If Trump ousts Jerome Powell, it could be Moore.