The Washington PostDemocracy Dies in Darkness

Stephen Moore says people don’t want to debate his economic ideas, but those are bad, too

Stephen Moore has come under much criticism for his past writings and comments. (Andrew Harrer/Bloomberg News)

Stephen Moore, who just withdrew from consideration for a spot on the Federal Reserve — in large part because of the controversy caused by his past writing that unattractive women shouldn’t be allowed to referee, announce or in any other way participate in men’s sporting events; that female athletes don’t deserve to be paid what their male counterparts are; and that it can be a problem when women in general make more than men — thinks he’s the victim of a “sleaze campaign” at the hands of people who don’t want to debate the substance of his economic ideas.

This is doubly ridiculous. First off, the idea that it’s somehow unfair to accurately quote his own words is a standard that, with good reason, has never been applied to anyone else anytime before. But second, and more important, is the fact that although Moore likes to pretend this is all an effort to distract from his supposedly brilliant ideas about monetary policy, those have actually come in for almost as much criticism as his views on women’s role in society.

Thune says Trump’s choice of Moore for Fed Board ‘is in trouble,’ expects decision on nomination this week

The important thing to understand here is that Moore wants the Fed to approach things in the exact opposite of the way it does now. How is that? Well, the Fed pays particular attention to the least volatile prices in the economy — everything, that is, excluding food and energy — to try to get a better sense of what’s going to happen to all of them in the future. The idea being that prices that are revised only every now and then show us what people think inflation will be, and that expectation is the mean that prices tend to revert to after any shock. Moore, though, thinks it would be better if the Fed focused on the most volatile prices instead: commodities such as gold and oil. That, as he told the Wall Street Journal, is because he believes that they’re “one of the best lead indicators of where we’re going with inflation."

So are they?

No, at least not anymore. See, while it’s true that commodity prices used to predict inflation pretty well back in the 1970s, that hasn’t been the case for a long time now. Indeed, since 1995, there has basically been no relationship between how much commodity prices have changed in the past and how much the overall inflation rate will change in the future. You can see that in the chart below, which compares how much commodities have gone up or down, in percent terms, the previous three months with how much the inflation rate ended up going up or down the subsequent three months. The former explains only about 4 percent of the latter — and the results aren’t any different if you look at it over, say, six- or 12-month time frames instead.

Why don’t commodity prices seem to tell us as much anymore? Three reasons. The first is that the price of things such as oil and aluminum are set in world markets, which have become more, well, global in the past 25 or 30 years. Which is mostly a story about how China’s voracious appetite for raw materials has meant that its prices have tended to go up even when inflation hasn’t here.

The second reason is that workers have lost so much bargaining power that even if commodities did push inflation up for a little while, it wouldn’t push wages up in a way that would make all of this last longer. Things were different during the 1970s, for example, when so many workers had automatic cost-of-living-adjustment contracts that it wasn’t hard to get in a situation where higher inflation would lead to higher wages, which would then lead to even higher inflation, and so on and so on. Nowadays, though, any commodity price spike tends to quickly just fade away since there’s nothing reinforcing it.

The third reason is that the Fed has done such a good job the past couple of decades at making people think inflation will stay around 2 percent that it has become much more stable — around, yes, 2 percent. It’s economics as self-fulfilling prophecy: Increases in commodity prices won’t lead to increases in other prices if people don’t think they will. And they don’t.

Stephen Moore has a history of questionable comments. Here’s a roundup.

All of which is to say that the world has changed a lot since the 1970s, but Moore’s understanding of it has not. He still thinks that commodities are the harbinger of either our inflationary or deflationary doom long after that ceased having any basis in reality. So a Fed that followed his policy prescriptions would find itself alternately raising rates because China’s economy was doing well, and cutting them because shale oil drillers had unlocked new sources of crude. In other words, frantically adding and withdrawing stimulus at what were, macroeconomically speaking, often inappropriate times.

Which might almost be the point? Moore, after all, has been looking for a reason that the Fed should be cutting rates right now even though unemployment is so low — he has been quite open about the fact that he thinks it’s important to goose growth heading into President Trump’s reelection campaign — and falling commodity prices were apparently the best he could come up with. It’s hard to shake the feeling, then, that this is all about giving a patina of intellectual respectability to what otherwise looks like a transparently partisan policy recommendation. The only problem, not that Moore seems aware of it, is that it hasn’t even done that.

Moore is quite versatile when it comes to bad ideas.