One of the startling features of the Republican debate is that the candidates are starting to talk about whether they would keep Janet Yellen on as chairman of the Federal Reserve. This came up in conversation with Fox News’ Neil Cavuto after the debate at Milwaukee. Donald Trump told Mr. Cavuto that it would be “very unlikely” that he would re-nominate Mrs. Yellen to the chairmanship, though, according to Politico’s account even Mr. Trump cautioned it’s too early to say for sure.
Dr. Ben Carson was even more vapid. He called Mrs. Yellen a “wonderful person,” which is no doubt correct and no one is disputing. Dr. Carson said he’s known her for many years, both having served on the board of the Yale Corporation. He said he’d wanted in the debate to talk about how we need a “more responsible” monetary policy, but he failed to articulate any such thing and in announcing his openness to a reappointment of Mrs. Yellen suggested he’s not engaged on this head.
In her leadership of the Fed, Mrs. Yellen has become a symbol of the resistance of the central bank to the establishment of any kind of rules based monetary policy. This was captured but a few months ago in the July 2015 hearing of the House Financial Services Committee, when Mrs. Yellen told Congressman Wm. Huizenga that she would “resist any rule” — even a non-binding rule that the Fed itself formulates, even if Congress were to name the rule for Mrs. Yellen.
This is what Mr. Cavuto was driving at when he was questioning Dr. Carson on whether he’d reappoint Mrs. Yellen, and Dr. Carson seemed totally out of it. In suggesting he might reappoint the chairman Dr. Carson is casting his lot with those who are satisfied with fiat money and a system that abhors a monetary rule of any kind. That is a shocking position given that we are at the beginning of a campaign that will center in large part on the Fed’s performance during the Great Recession.
The question of rules, after all, is not a right wing-left wing matter or a partisan dispute. No less a Democratic titan than Paul Volcker, among Mrs. Yellen’s most distinguished predecessors as chairman of the Federal Reserve (elevated to the chairmanship by President Carter), has declared, as recently as a year and a half ago: “By now, I think we can agree that the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.”
Even that doesn’t quite capture the full dimension of this dispute. What is brewing in Washington is a contest of supremacy between the Fed and the Congress such as we haven’t seen since the “Bank War” that was fought (and won) by President Jackson. For the first time in years, Congress is moving to assert the monetary powers granted to it — as opposed to the other branches — in the Constitution. It is not a dispute about whether Mrs. Yellen is wonderful person but about how the Federal Reserve has peformed.