Left-leaning critics of the Federal Reserve, in particular Big Labor, have a colorful metaphor for the central bank’s oversized power over our economy.
You’re at a great party. The partygoers are having the time of their lives, but some are throwing back a few too many and it’s getting out of hand. So the host has to take away the punchbowl!
Removing the booze when the economy gets too happy is a thankless job, but somebody has to do it, and that somebody is the Fed. Otherwise people might get hurt, the victims of “irrational exuberance,” to use Alan Greenspan’s infamous phrase, which instantly sent global markets on a downward course amidst the 1990s tech boom.
What’s so disgraceful about more-reliable-than-not Republican senators like Lindsey Graham and Joni Ernst knocking growth champion Steve Moore out of contention for a seat on the Federal Reserve is that Moore knows the punchbowl is a phony analogy.
Like others in the supply-side movement that came to prominence designing Ronald Reagan’s tax cuts, Moore knows that an economy growing at optimum speed does not cause inflation. And he would have been the first Fed governor ever who unapologetically refused to raise short-term interest rates for the express purpose of slowing down an “overheating” economy. He wouldn’t take part in killing Americans’ jobs for fear of an inflation ghost that the evidence says doesn’t really exist.
He also understands that money supply and interest rates are not the federal government’s playthings, which is why Moore has emphasized the importance of looking to the real world indicator of gold and other commodities for guidance, and has even wondered – like free-market Nobel laureate Milton Friedman – if the Fed should even exist in its present form.
Elite Bureaucratic Power
The Federal Reserve is adept at using the complexity of money and banking to defend itself from attack and reform. It’s a quintessential example of elite Washington bureaucracy maintaining power by convincing the people that taking it away from the experts would mean the end of the world. The iconoclastic Moore wasn’t welcome in that inner sanctum.
Republican senators like Rob Portman of Ohio, Shelley Moore Capito of West Virginia, and frequent thorn-in-conservatives’-side Susan Collins of Maine, who signaled misgivings about Moore’s nomination, should go back home and undergo town hall hell for opposing Moore. There are constituents in their states, Graham’s South Carolina and Ernst’s Iowa, who will lose out on good jobs because they kept a man whose priority was job creation off the board of the central bank.
As everyone who’s dealt with him over his long career going back to the 1980s knows, Moore is one of the most cheerful, optimistic, high-energy souls in Washington. The unearthed humorous comments he made about women, or the Midwest (from which he comes), are mud dug up and slung at him to keep an enemy of anti-free market big government off a powerful agency where he would have effectively opposed those destructive forces.
An Absurd Smear
And a distasteful irony is that at a time when Democrats breathlessly accuse Republicans of xenophobia and racism, they shun a man who 30 years ago, with economist and Ultimate Resource author Julian Simon, established the American Immigration Institute. That organization’s core purpose was to raise awareness about how immigrants – of all races, places of origin and economic condition – help the economy.
In those days, Moore was known for privately suspecting anti-immigration conservative Republicans of racist motives. Yet he is now absurdly smeared as a bigot.
President Trump will find another Fed nominee who champions economic growth – no doubt with help from Moore. And Moore will likely continue to help craft this administration’s stunningly successful economic policy, whose tax cuts and reduction in regulations have given America a private sector and a jobs market that are now the envy of the world.
But it won’t be the same as having the unafraid Steve Moore inside the Federal Reserve, shaking up perhaps the most insulated and unaccountable government agency in Washington, with the noble purpose of giving Americans as many jobs and as much opportunity as possible.
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Sad that a good man was tarnished so hatefully. As a fellow mid-westerner who had a chance to meet with Steve a few months ago and get his take on minerals and their potential blockbuster contributions to the economy, I experienced his candor and typical Chicago-area forthrightness as he hit me with questions about the Silicon Valley perspective on so many issues. When tech leaders disrupt the status quo, people cheer. Apparently the same privilege is not given to those who dare challenge the ossified 20th century policies of the Fed. Hopefully just his nomination got people thinking about exactly what role the Fed plays in the boom/bust cycle of our economy. Frankly, I wonder if most of their actions simply justify their existence. Full disclosure: Steve Moore endorsed my latest book, Groundbreaking! America’s New Quest for Mineral Independence.
Thanks Ann. Steve doesn’t have a bigoted bone in his body, and his whole purpose in his professional life has been to improve people’s lives. The fact he can be taken down shows how vicious the champions of ever-expanding government are. Best, TMcA
Thanks for your article. I’ve shared it with my followers.
In an interview in the Washington Examiner, Moore advocated tracking 40 commodities and based on their prices, adjusting the federal funds rate to keep prices constant.
If so, then the Fed would be adding its own actions in with all the other changes happening in the economy that affect prices. Keeping prices stable would mean inflating away the entire benefit from improvements in productivity. And doing this through guesswork based on an extraordinarily-limited sample of all prices in the economy; for example, without considering asset prices.
The better alternative would be (1) for the Fed to take no actions to try to control prices or anything else in the economy; (2) for the Fed to, as well as it currently can, freeze the total quantity of money outstanding; and (3) for the Fed to develop a program to eliminate the use of fractional reserves.
If the Fed would take no control actions and freeze the total quantity of money outstanding, this would reduce the number of changes that affect prices and interest rates, and allow these to be determined more directly by changes in productivity, by the various destructive acts of nature and man, and by the distributed-control responses of people in business making use of all available relevant, hyperlocal information.
If the Fed would focus its actions on eliminating the use of fractional reserves, this would eliminate the government’s contribution to debt deflation cycles, changing the source of economic cycles. Economic cycles would no longer be driven by large financial manipulations by an unending series of government people who are often misinformed by wrong economic theory, and who at best are trying to learn the same lessons anew with each change in management. Economic cycles would instead become a smaller, dampening series of responses to external events and business planning errors. The cycles would be smaller because money for investment wouldn’t be injected by debt; money for investment would have to be earned and saved. The cycles would dampen because people in business would be weeded out more quickly, and the businesses that perform the best would accumulate helpful institutional memories of what worked the best and what is likely to work even better in the future.