By Lewis K. Uhler and Peter J. Ferrara
Fed monetary policy bumbling threatens President Trump’s booming economic recovery, job growth, and rising wages prompted by tax reform legislation and deregulation. So Trump is trying to restore the Fed to Reagan era predictability with his new appointments. Republicans should not thwart this effort.
Trump named Stephen Moore and Herman Cain as nominees to the Federal Reserve Board. In saner times, they both would be the first picks promoted by Democrats, which used to be the party of working people.
Both Moore and Cain have long been critical of Fed policy, which sees rising wages as the first sign of inflation. Consequently, when wages start to rise, the Fed clamps down on the economy. That is why working people in America have not seen wage increases in decades.
Except now under Trump. Trump’s tax reform, with lower marginal tax rates, and deregulation, have stimulated massive investment across America, creating millions of new jobs. That increased demand for labor has produced rising wages, more for the lower income and less skilled than for upper incomes. This is why Trumponomics has produced more income equality, exactly opposite to Obamanomics.
Milton Friedman was first to recognize that “inflation is always and everywhere a monetary phenomenon” caused by the Fed increasing the supply of money faster than money demand. Rising wages do not cause inflation. Confused Fed policy does.
Moore: Follow the Reagan-era Price Rule
As Moore explained recently in The Wall Street Journal, he wants the Fed to follow the Reagan-era Price Rule. The Fed would then look to sensitive market prices of precious commodities, like gold, silver, copper, and oil, to guide its monetary policy.
If those most sensitive prices are rising, that is the first sign of inflation, and the Fed would know that monetary policy is too loose, and it should pull back. If those prices are falling, the Fed would know that its policies are deflationary, too tight and restrictive, and it’s time to loosen up.
This is the policy that President Reagan’s Fed appointees adopted to quickly end the double-digit inflation of the 1970s. That was followed by 25 years of economic growth, a stable dollar with no significant inflation or deflation, job creation, rising wages, and no significant recessions.
Cain holds the same views as Moore. He is highly qualified for the Fed Board of Governors, having served as Chairman of the Kansas City Regional Fed. But with four Republican Senators vowing to vote against Cain’s confirmation, he has now pulled out of the nomination.
The opposition of these Senators to Cain is inexplicably foolish. Top priority for all Republicans must be to keep the astounding Trump economic boom going. That will assure that he rides to victory next year in a Republican landslide reelection.
If the Fed announced it will follow the Reagan era Price Rule again, the stock market would set new records, and the economy would resume soaring, creating millions more jobs, and further increasing wages. Trump’s recovery could last 25 years, as Reagan’s did.
Proper monetary policy is the missing link assuring that the tax reform/tax cut produces sustained economic growth. With new Fed members advocating the Price Rule instead of guesswork, we would enjoy predictable monetary policy and the resulting long-term economic growth, jobs boom, and rising wages.
Where Are the Pro-Worker Dems?
If Democrats still represented working people, they would be first in line championing Moore and Cain today, because they would end the Fed’s decades long bias against wage growth.
But Democrats have now openly abandoned working people for their new, hip, Rainbow Coalition. Today’s Democrats stand instead for Socialism, the wildly expensive Medicare for All, the wildly expensive Green New Deal, illegal immigrants, Central Americans, Reparations, and LBGTQ grandstanding, rather than American workers.
Democrats today are so divided, with over 20 candidates running for President, and so overconfident, moving wildly to the Far Left, advocating enormous tax increases that would only return America to recession and stagnation. Starbucks billionaire Howard Schultz running as a moderate would only further divide their vote.
That is why on current course, Democrats are going to make 2020 look like 1984 and 1972, when far-left Democrat candidates ran on tax increases against incumbent Republican Presidents, losing in historic landslides. Polls already show Trump’s Hispanic support at nearly 50%, with black support also at surprising levels. Turns out that the forgotten Democrat base favors economic growth, jobs, and rising wages, over open borders and tax increases, like the rest of America.
So keep the economy growing, jobs multiplying, and wages increasing. Good monetary policy will assure it. Senate Republicans should support Trump’s Fed nominees, and they and Trump can run in 2020 on a new campaign song, “Happy Days are Here Again.”
Lewis K. Uhler is Founder and Chairman of the National Tax Limitation Committee and National Tax Limitation Foundation (NTLF). He was a contemporary and collaborator with both Ronald Reagan and Milton Friedman in California and across the country.
Peter Ferrara is the Dunn Liberty Fellow in Economics for the King’s College in New York, and Senior Policy Adviser to NTLF. He served on the White House Domestic Policy Council under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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