Trump’s ‘New Tactic’ at the Fed

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Something is missing, it strikes us, from Alan Blinder’s sally against Judy Shelton, the woman President Trump is preparing to nominate for a governorship of the Federal Reserve. Mr. Blinder, who was made vice chairman of our central bank by President Clinton, says that Ms. Shelton is part of a “new tactic” in President Trump’s war on the Fed. “The idea,” he avers in a column in the Wall Street Journal, “is to undermine the chairman and make the job harder.”

Mr. Blinder certainly speaks from experience. He practically invented that strategy. Nominated by a Democrat, he reportedly spent his brief tenure at the Fed stewing about how its Republican-nominated chairman, Alan Greespan, cut him out of the information flow. A few months into his term, Mr. Blinder gave at the Fed’s retreat at Jackson Hole a speech widely seen as challenging the chairman. Yet the episode is missing from his column in respect of Ms. Shelton.

A wonderful account of it, though, is contained in an “Annals of Finance” column by the New Yorker’s John Cassidy. It was issued in February 1996, under the headline “Fleeing the Fed.” Mr. Cassidy reckons that Mr. Blinder’s brief time at the Fed gave him “a brutal education in the realities of politics and power.” He had once been a “strong contender to succeed Greenspan as chairman.” But, Mr. Cassidy wrote, Mr. Blinder eventually concluded that “he no longer wanted the vice-chairman’s job.”

The fracas, Mr. Cassidy noted, was covered for the Times by Keith Bradsher. His report characterized Mr. Blinder as having “publicly” broken ranks “with most of his colleagues” by suggesting the nation’s central bank “should seek to hold down unemployment in setting interest rates.” Mr. Blinder noted to Mr. Cassidy that maximizing employment had been a statutory part of the Fed’s mandate since 1978, when President Carter signed Humphrey-Hawkins.

Humphrey-Hawkins is a law that beckoned the Fed ever more deeply into a political role. At Jackson Hole, Mr. Blinder said he thought that unemployment, recently at 6.1%, was what Mr. Bradsher called “roughly as low as it could go without feeding inflation.” Imagine if, say, President Obama had tried to make that argument at the time his economy was running unemployment rates above six percent. And what a contrast to the Trump economy.

Which brings us back to Ms. Shelton. We wonder whether all this accounts for a slight air of bitterness in Mr. Blinder’s swipes at Mr. Trump’s possible nominee. “Dreadful” is one of the words with which this ex-vice chairman of the once-staid Fed describes Ms. Shelton and other governors Mr. Trump has proposed. He faults her for suddenly being prepared to back the low interest rates Mr. Trump wants. He calls it “politics, not economics, in action.”

Well, what was Mr. Blinder doing in the battle of Jackson Hole but dressing President Clinton’s politics in economic jingle jangle? “It gets worse,” Mr. Blinder says. “Ms. Shelton advocates a return to the gold standard.” He concedes she “isn’t alone,” but adds that “the Flat Earth Society has members, too.” He suggests it’s mere libertarian longing for the golden age, but writes: “we don’t put people like that on the Federal Reserve Board.”

Returning to the gold standard, Mr. Blinder suggests, could put us at the mercy of not only Russia but China. Yet annual gold output of all countries is but a tiny part of known gold. Somehow we managed to race past Russia while we were on the gold standard. Meantime, fiat money has enabled Congress to go into hock to the Red Chinese for more than $1.1 trillion, without a peep of protest from the Democrats.

We, for one, hope the Senate sees past this demagoguery. If Ms. Shelton gets a confirmation hearing, maybe the Senate will call Mr. Blinder’s one-time chairman, Mr. Greenspan himself, and see what he thinks about the role of gold in an ideal monetary system. And, for that matter, which monetary policy thinker he reckons is right for the Fed’s board in the Trump era and near future — the man who attacked him at Jackson Hole or Ms. Shelton. That might fill in the story.


Image: Drawing by Elliott Banfield, courtesy of the artist.

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