Will Trump Trumpify the Fed?

Paul Krugman -  The New York Times

By all accounts, Rex Tillerson has demoralized and degraded the State Department to the point of uselessness. Tom Price did much the same to Health and Human Services before jetting off. Scott Pruitt has moved rapidly to eliminate the “protection” aspect of the Environmental Protection Agency. And similar stories are unfolding throughout the executive branch.

Donald Trump has, in short, been like a Category 5 hurricane sweeping through the U.S. government, leaving devastation in his wake. And one question I don’t see being asked often enough is, will the same thing happen to the Federal Reserve? And if it does, how disastrous will that end up being for the world economy?

The Fed, which sets monetary policy, is by far our most important economic agency; its chairwoman (or chairman) is arguably the most powerful economic official in the world, more than the president himself. Its institutional status is peculiar: It isn’t exactly part of the executive branch, but it isn’t exactly independent, either. Its board members are appointed by the president subject to congressional approval, but have traditionally been technocrats expected to distance themselves from partisan politics.

That is, however, a norm rather than a legal requirement. And we know what tends to happen to norms in the Trump era.For more than a decade the Fed chair has been a distinguished academic economist — first Ben Bernanke, then Janet Yellen. You might wonder how such people, who have never been in the business world, who have never met a payroll, would deal with real-world economic problems; the answer, in both cases: superbly.

In particular, both Bernanke and Yellen responded effectively to a once-in-three-generations economic crisis despite constant heckling from back-seat drivers in Congress and on the political right in general. And their intellectual and moral courage has been completely vindicated by events.

Given this track record, you might expect to see either Yellen reappointed or an equally qualified technocrat take her place. But remember, we’re living in the age of Trump, which means that we should actually expect the worst.

It seems safe to assume that Trump himself understands nothing about monetary policy. True, he’s pronounced on the subject fairly often, but not in any coherent way. One day he praises low interest rates for boosting the economy; the next he denounces them for hurting the incomes of the middle class. So trying to guess his Fed choice from his policy views is a mug’s game.

What he’s more likely to do is what he’s done with many other appointments: defer to congressional Republican leaders — leaders who, on matters monetary, have been wrong about everything.

When the financial crisis struck in 2008, it was essential that the Fed engage in aggressive monetary expansion — loosely speaking, print lots of money. There are circumstances in which that kind of action would be inflationary, but economists (like Bernanke and, well, yours truly) who had studied the subject understood that this wasn’t one of those times. Indeed, inflation stayed quiescent even as the Fed quadrupled the monetary base.

But congressional leaders fought these necessary measures every step of the way. Most notably, Paul Ryan, who gets his ideas about monetary policy from Ayn Rand novels, berated Bernanke, claiming that his policies would debase the dollar and lead to runaway inflation.

Writing with John Taylor, one of the people whose name is being floated as a possible Fed chairman, Ryan went so far as to suggest that the Fed’s policies were part of a politically motivated attempt to bail out President Obama’s fiscal policies. And so on.

And it goes more or less without saying that none of the people who kept warning that the Fed would cause terrible inflation have admitted having been wrong, or learned anything from the experience.

What all this means is that if congressional Republicans play a large role in selecting the next Fed chair, they’ll insist that it be someone who has been wrong about everything for the past decade.

Kevin Warsh, a former Fed governor widely considered a favorite for the job, certainly fits the bill. He warned about inflation in the midst of global economic collapse; he argued vigorously against doing anything, monetary or other, to fight 10 percent unemployment; he warned that the United States was about to turn into Greece, Greece I tell you. And he has shown no hint of being chastened by the failure of events to play out the way he expected.

Now, I don’t know who Trump will actually pick to head the Federal Reserve. It might actually end up being someone smart, knowledgeable and honest. Hey, there’s a first time for everything.

But surely it’s possible, even probable, that the Federal Reserve, like other government agencies, is about to get Trumpified, that one of American policy’s last remaining havens of competence and expertise will soon share in the general degradation. And won’t that be fun when the next crisis hits?  OCT. 6, 2017

 

Annex:

Trump’s Scandals, a List

David Leonhardt  - The New York Times

Gun money. Which members of Congress have benefited the most from National Rifle Association campaign donations over their careers? We’ve published a top 10 for both the House and Senate.

The swamp. The list of Trump scandals keeps growing. The latest came in a scoop The New Yorker published yesterday about the Trump children’s shady avoidance of charges in a 2012 real-estate fraud case.

“Amid the chaos and dysfunction,” Slate’s Jamelle Bouie writes, “it can be easy to miss that this White House is corrupt. Remarkably, unbelievably, corrupt.” Given the number of potential scandals involving personal enrichment — of President Trump, his family or top administration officials — I wanted to create a list of all the major ones. Here goes:

• As The New Yorker, ProPublica and the public radio station WNYC reported yesterday, longtime Trump lawyer Marc Kasowitz donated more than $50,000 to a Manhattan district attorney who later dropped a case against Ivanka Trump and Donald Trump Jr.

• The presidency is benefiting Trump’s business in numerous ways. Government officials have stayed in hotels that bear Trump’s name, for example, while Trump’s Mar-a-Lago club doubled its membership rates after he won the White House.

Also: Eric Trump has been giving his father quarterly updates on the financial health of his businesses, despite promises that the president would have no involvement. Those businesses have also done deals with foreign governments, despite the president’s pledge that they wouldn’t.

• Trump has spent more than $30 million of taxpayer money traveling to properties he owns, by one estimate.

• Ryan Zinke, Trump’s secretary of the interior, is under investigation for chartering a $12,000 flight from Las Vegas to Montana at taxpayers’ expense.

• David Shulkin, the secretary of Veterans Affairs, charged taxpayers for a trip to Europe that included stopovers at Wimbledon and Westminster Abbey, plus a river cruise for him and his wife.

• Scott Pruitt, who runs the Environmental Protection Agency, regularly dines with donors and lobbyists from industries his department is regulating. He also used public money to pay for a soundproof booth in his office and chartered private and military overseas flights.

• Steve Mnuchin, the Treasury secretary, tried to use a government plane to fly him to Europe for his honeymoon. He may also have availed himself of a taxpayer-funded military plane to view the solar eclipse in August, though he says the trip had a different purpose.

• Tom Price, the former secretary of health and human services who resigned last week, spent hundreds of thousands of taxpayer dollars on private planes. Trump hired Price despite Price’s history of using his position in Congress to receive sweetheart stock deals.

• Jared Kushner has reportedly used his closeness with Trump to secure foreign investment in Kushner’s family-owned business, in exchange for granting visas.

• A Chinese government office approved trademarks for a company owned by Ivanka Trump on the same day that China’s president met with President Trump.

• Paul Manafort, Trump’s former campaign chairman, may have used his position to repay a Russian oligarch.

• Michael Flynn lobbied on behalf of the Turkish government, but Trump selected him as national security adviser anyway (before later ousting him).

If you think the list above is incomplete, and I assume it is, email me at leonhardt@nytimes.nyt

 

 

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