The way we think about the confirmation hearing tomorrow for economist Judy Shelton to be a governor of the Federal Reserve is as a test less of her than of the Republican Party. Is it going to make good on the platform on which President Trump stood for the presidency in 2016? That platform called for a more transparent and accountable Federal Reserve and a monetary commission to start looking at ways to improve our system.
Those campaign promises didn’t just erupt out of the blue. They were born of the realization that the Federal Reserve bears a share of the responsibility for the Great Recession that started in 2007 and hobbled our recovery for much of the Obama era. Those were years in which the House of Representatives, in a bipartisan vote of 333 to 92, passed Congressman Ron Paul’s Audit the Fed bill.
Dr. Paul’s bill was only one of a number of measures designed to give Congress better tools to oversee monetary policy. After all, 100% of the monetary powers that the Constitution grants to the government are granted to Congress. Audit the Fed and other measures were finally sent, in late 2015, to the Senate, where, with the election coming up, the solons froze. They did so even though Mr. Trump campaigned for monetary reform.
Once elected, Mr. Trump seemed to change his tune. No longer did he talk about a “false economy.” Instead he plumped for easy money. Advocates of monetary reform wondered whether Mr. Trump had completely forgotten about his promises. His nomination of Ms. Shelton — who has written, on the Wall Street Journal’s op ed pages, a body of brilliant commentary on monetary matters — signals that he hasn’t forgotten.
This, of course, has agitated the Democrats and other opponents of reform. In one of their most amazing dodges, they have been criticizing Ms. Shelton for seeming to endorse Mr. Trump’s call for the ultra-low interest rates that the Democrats themselves favor — as if to say, “don’t confirm her, she agrees with us.” Tomorrow’s Wall Street Journal carries an important editorial sorting all that out.
Our own focus throughout this long debate has been less on what interest rates the Fed ought to set or other details of Fed policy. We don’t feel qualified on that head. We are more focused on the strategic failures of the Fed; even its erstwhile chairman, Paul Volcker, argued before his death that “the absence of an official, rules-based, cooperatively managed monetary system has not been a great success.”
Meantime, we are reminded in the latest issue of Grant’s Interest Rate Observer, that the CBO is now calculating that the federal budget deficit between 2021 and 2030 will average $1.3 trillion and climb to 5.4% of GDP. Grant’s calls these “unheard-of figures except in times of national mobilization for war.” Our own view is that monetary reform is one of the ways Congress can start to put the brakes on the borrowing this will require.
We comprehend that it is not the job of a Federal Reserve governor to reform the monetary system. That is the part of Congress. Whenever during the Obama years congressmen asked about reform, though, they were met with truculence from Chairmen Bernanke and Yellen. How refreshing it would be to have some members of the Fed board who aren’t so defensive about new ideas. Ms. Shelton seems made for the part, and her confirmation hearing will be as important as that of, say, a Supreme Court justice.