The Purple Dollar

The press is having a chuckle over the chairman of the Federal Reserve, Jerome Powell, confiding that his predilection for purple ties proves that the central bank is “strictly nonpolitical.” His apparent concern is that sporting a red or blue cravat could signal a tilt toward one or the other political parties. We can’t gainsay the chairman’s fashion sense. Constitutionally, though, his claims of the Fed being above politics — or independent — are nonsense.Mr. Powell’s sartorial comments followed his warning of economic harm from President Trump’s tariffs. Those tariffs are a political question, and so is the question of whether they do harm. There are no non-political decisions made by the Federal Reserve. Monetary policy is inherently political — hence the Framers granting the monetary powers to the most political branch, the Congress. It gets to tax, borrow, spend, and regulate the value of money.Mr. Powell gave no signal of a historical basis for his fondness for the color purple, but the shade has a long pedigree. In the ancient world, the color was known as Royal, or even Imperial purple, because of its prohibitive expense. “Born to the Purple” became a byword for royalty. The hue came to be associated in Roman times with the political elite and eventually only the omnipotent emperors and their entourage were permitted to wear purple. Mr. Powell is too smart to feign ignorance of that ancient legacy of unaccountability when he touts the central bank’s independence. The Fed, after all, is an enormously powerful institution staffed by unelected officials. The bank’s deliberations are largely conducted out of public view, and its leadership is allergic to oversight from the elected politicians who, until the Fed was formed in 1913, had the constitutional authority to set America’s monetary policy.The decision by Congress to cede its monetary powers to the Fed, these columns noted yesterday, is of a piece with the legislature handing the president its authority over tariffs. In both these cases, Congress threw off the balance of constitutional power ordained by the Framers. Both tariffs and monetary policies, it would seem, would benefit from being hashed out, in full public view, in the halls of Congress, as they were historically, by accountable officials.By contrast, feature how the Fed responded to talk of Mr. Trump selecting a new Fed chairman before Mr. Powell’s term ends. “I will never, ever, ever leave this job voluntarily until my term ends under any circumstances,” Mr. Powell averred. The Fed’s policy-making Open Market Committee, the Wall Street Journal reported, even plotted to defy Mr. Trump’s wishes, if Mr. Powell’s “status” were to be “called into question,” by re-electing him as its chairman.This “Revolt at the Fed,” as these columns termed it, sums up the constitutional anomaly of a central bank that answers to no one. It would be one thing were the Fed — over the long term — doing an adequate job as a steward of the dollar. Yet since the Fed’s formation, the dollar’s value has plummeted by some 99 percent, to less than a 3,100th of an ounce of gold. When the Fed was created, the dollar’s gold value was a 20.67th of an ounce.The Fed, too, has in recent decades engaged in reckless monetary experiments, such as holding interest rates to artificially low levels, fueling an asset bubble. The central bank has racked up an unprecedented $6.7 trillion balance sheet in another effort to manipulate the economy — only to find that it is having trouble reverting to its historic level of less than $1 trillion. Nor, it seems, can the Fed seem to get inflation back down to its 2 percent target.“They’re wrong and they’ve been wrong for decades,” says Mr. Trump’s budget chief, Russell Vought, a leading critic of rogue federal agencies. Which brings us back to Mr. Powell’s preference for purple. It was Rome’s profligate purple-clad emperors, who, in need of cash, debased the empire’s silver currency in the Third Century and sparked hyperinflation of some 15,000 percent. Seems the wearing of purple is no guarantee of economic wisdom.

The Purple Dollar

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