Trump is finally Trumpifying the Fed
"Reasonable" is not a word one usually associates with President Trump. But it pretty aptly describes his appointments to the Federal Reserve. Many of Trump's staff picks have been grifters and hacks. But all of his Fed choices thus far have been middle-of-the-road experts any member of the establishment could get behind.
Until the last few weeks, that is, when the era of reasonable Trump Fed picks came to a screeching halt.
In late March, Trump offered Stephen Moore, a senior fellow at the right-wing Heritage Foundation and a champion of tax cuts for the wealthy, one of the two remaining seats on the Fed's Board of Governors. Then, late last week, Trump told his staff he wants to start prepping Herman Cain, a former Godfather's Pizza CEO and 2012 Republican presidential contender, for a Fed nomination as well.
Both picks have been greeted with near-universal horror by observers who closely watch the Fed and monetary policy.
What really stands out about Moore and Cain is the extent to which they're both political animals, of a particularly shallow ideological bent.
Moore had a hand in the massive tax cut experiment that wrecked the finances of Kansas' state government. Neither that failure, nor the complete economic dud that was Trump's own tax cut package for the wealthy, seems to have impacted his views. The Kansas City Star actually stopped running Moore's commentary because he kept fudging his facts on the issue.
Cain tried to turn tax policy into a pizza branding campaign in the 2012 primary with a "9-9-9" plan that would've levied a 9 percent sales tax on the country, while cutting income and corporate taxes to 9 percent each. It would've actually blown up the deficit while at the same time raising most Americans' taxes. Then, once his 2012 campaign crashed and burned, Cain turned to selling get-rich-quick schemes and cures for erectile dysfunction. (It's also worth noting that Cain's presidential campaign was cut short by multiple accusations of sexual misconduct.)
Basically, the careers of both men demonstrate the same snake oil salesman tendencies as Trump himself.
As for monetary policy specifically, Moore doesn't have much of a background in it, as he openly admits. Cain technically has a better background: He was director of the Federal Reserve's Kansas City branch from 1992 to 1996, and also served as its deputy chairman, and eventually chairman. But, frankly, this shouldn't be seen as evidence of Cain's monetary policy chops so much as an indictment of the way the Fed's regional branches often get staffed.
More importantly, to the extent either man has opinions on monetary policy, those opinions feature a glaring before-Trump versus after-Trump divide.
Conservatives and Republicans tend to be inflation hawks, and they flew into a panic when the Fed tried to boost the economy out of the Great Recession by driving short- and long-term interest rates as low as they could go. But that was when Barack Obama was in the White House. Now it's occupied by Trump, who's not only an unorthodox Republican, but is also trying to sell his re-election on an economy that isn't hitting the marks he wants it to. And Trump blames the Fed's recent series of modest interest rate hikes for the economy's shortcomings.
Both Cain and Moore have happily shifted their monetary policy views to accommodate the shift in Republican fortunes.
In 2012, Cain called for a return to the gold standard, a policy that would drastically shrink the money supply and drive interest rates up. Other reports documented his inflation hawkery going back to his Kansas City Fed days. But since he's been on Trump's radar for a Fed position, Cain has changed his tune. "If I were offered the job, I would try to encourage the Fed not to make inflation a fear factor," he said in a February. "Deflation is more of a fear factor than inflation."
Moore is cooler on the gold standard than Cain, though he did say in 2015 that a gold standard would be "a lot better than what we have now." Instead, Moore called for the Fed to peg its interest rate changes to a basket of commodities. That policy would've driven interest rates way up in the aftermath of the Great Recession — but would also call for lower interest rates than the Fed is pursuing in the here and now. That served as Moore's justification for insisting the Fed was sabotaging Trump's recovery — a missive that probably got Moore on Trump's shortlist for the Fed job.
The thing is, lower rates tend to boost jobs and wages while also risking higher inflation. But recessions are when jobs and wages are needed most and inflationary pressure is at its lowest ebb, while it's the reverse when unemployment is low. There are arguments for why interest rates were too low after 2008 and are too low now. They are disastrously wrong, but they are at least internally coherent. There is no way to tell a sensible story in which interest rates were too low circa 2012 but are too high now. But that's just what Cain and Moore did.
The problem is not so much that their monetary policy views are wrong, as that they have no fixed views at all. They simply adapt to whatever's immediately politically expedient for the Republican Party.
Eventually that could spell disaster for the American economy.