In the past year, President Trump has fruitlessly tried to cajole, castigate and even coerce the people he has appointed to the Federal Reserve — mostly via tweet, of course — into acquiescing to his demands for lower interest rates.
At this point, though, he realizes it would be a lot easier to nominate someone to one of the Fed’s open seats who agrees with him to begin with. The only challenge, from his point of view, being that he does not want to end up with someone who is so empirically minded that they go from supporting lower interest rates to higher ones just because the economic conditions warrant it. Which is why it would probably be more accurate to say Trump is really looking for someone who would not disagree with him more than anything else. The kind of person, for example, who would write such a hagiographic ode to Trump’s policy agenda that even a mainstream conservative like Harvard economist Greg Mankiw, who was a top adviser to both George W. Bush and Mitt Romney, would call it “over-the-top,” “bereft of nuance” and largely offering “simplistic, misguided advice.” Someone, in other words, like “Trumponomics” author and Heritage Foundation fellow Stephen Moore.
This, if he is confirmed, could very well be the first step down a troubling path for the Fed. It is not just, as we will get to in a minute, that Moore demonstrably lacks either the experience or the expertise we would want in a central banker. It is also that he has an abundance of something we would not: political loyalty. Not to wax too nostalgic, but the Fed has been one of the few institutions that, even in these polarized times, has largely remained nonpartisan. You might say it has not had red state economists or blue state economists, but just United States economists doing their best to keep both inflation and unemployment low. That is the reason that, until Trump, it had been a bipartisan tradition to reappoint Fed Chairs, regardless of which party had originally nominated them, as long as they still wanted the job and seemed to be good at it.
None of this describes Moore. He has been as much a political operative as an economic commentator — he co-founded the dogmatically anti-tax lobbying group the Club for Growth — which is clear enough in the way his analysis is often indistinguishable from partisan cheerleading. So a world in which Moore can be appointed to the Fed is one in which both parties would feel free to fill it with apparatchiks, where monetary policy would become just another front in our culture war.
It is important to remind ourselves, then, that it is and should be shocking that someone who, by his own admission, “will be on a steep learning curve myself about how the Fed operates” would be nominated to one of its most important policymaking positions. Moore’s primary passion, you see, has not been trying to figure out how high interest rates should be but, rather, how to keep taxes as low as possible on the rich. It is a cause he takes so seriously that he has not let facts get in the way. Indeed, back in 2014, he wrote an op-ed on what he claimed was the superior economic performance of low-tax states that was so riddled with errors — even his corrections turned out to be wrong — that the newspaper that published it no longer accepts pieces from him.
But, at the same time, it is hardly a surprise Trump would pick someone who, when it comes to the Fed, has demonstrated a willingness to say whatever it is that seems to best suit the interests of the Republican Party at any particular moment. That might sound unduly harsh, but Moore is probably the only person who went from arguing that the Fed needed to raise rates when Obama was president because inflation was “really” higher than the official numbers said it was to now saying it needs to cut them since, you guessed it, inflation is supposedly lower than the government would lead you to believe. In both cases, Moore simply cherry-picked prices that were, respectively, either rising faster or slower than the average, as if that proved the average was wrong, rather than he just does not seem to understand how averages work. The almost too-perfect result is that Moore was warning about hyperinflation when we had deflation under Obama, and about deflation when we had relatively normal inflation under Trump.
It is how someone who used to say “zero interest rates haven’t helped the economy” when we had a president he did not like could now be so opposed to any rate increases that he thought Fed Chair Jerome H. Powell should have been fired for the last one.
But, as bad as that is, it might not even be Moore’s worst idea about monetary policy. No, that is the fact he thinks the Fed should primarily seek to stabilize commodity prices — things like gold, oil and soybeans — rather than overall prices. What is so wrong with that? Well, both because their prices are set in world markets and their supply can be subject to pretty wild swings, say, from a civil war taking Libya’s oil production offline, or the shale revolution unlocking new sources of crude, commodity prices tend to bounce around a lot in a way that does not always tell us much about the state of the economy. Take, as we just mentioned, soybeans. Their prices have fallen not because the economy has slowed down but, rather, because Chinese purchases of them have in retaliation for Trump’s tariffs. Does that mean the Fed should cut interest rates to try to prop their prices up, even though all the other economic data says it should probably leave them where they are? Moore remarkably says yes. Which is precisely the problem with this type of policy rule: More often than not, it would tell the Fed to either add or take away stimulus at inappropriate times. The worst would have been in 2011, when it would have led us to raise rates at a time of 9 percent unemployment just because oil prices had gone up.
All of which is to say there is a reason the Fed mostly ignores commodity prices. It has learned the hard way that it is better to set policy based on the least volatile prices in the economy, not the most volatile ones. Moore, though, has not learned that at all. That is probably because, as my colleague Catherine Rampell points out, he falsely believes this is the way the Fed used to do things when it was successfully able to bring inflation down in the 1980s. So at least he has the excuse of being ignorant, although that is not generally a quality you look for in members of the Federal Reserve.
It is no wonder, then, Mankiw, who, remember is a Republican, says Moore just “doesn’t have the intellectual gravitas for this important job.” Not that Republican senators, who are the ones who get to decide this, agree. They are already warming up to Moore. It is almost enough to make you laugh that they blocked a Nobel Prize-winning economist from taking the very same job eight years ago for allegedly lacking the right qualifications — which would seem to be that he was a Democrat.
In case it was not clear before, the Fed is in real danger of being politicized. If he is confirmed, Stephen Moore will be only the beginning.