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Donald Trump has threatened to fire Federal Reserve chairman Jerome Powell for refusing to lower interest rates at a time when the (official) unemployment rate in the U.S. is approaching record lows.
Judy Shelton implored the Fed to tighten the money supply in 2010, when unemployment sat near 10 percent. Her argument at the time: Condemning tens of millions of workers to joblessness was morally preferable to risking even 2 percent inflation — because any policy that reduces the value of the dollar by a cent constitutes “an egregious violation of your property rights” (assuming “you” are a person who owns lots of U.S. dollars).
Shelton has endorsed similar views throughout her career as an economist. She’s a classic conservative inflation hawk, the kind who believes that U.S. monetary policy should be determined by the global supply of gold, rather than the material needs of its working people. Which is to say: She is ostensibly the exact opposite of what Donald Trump is looking for in a central banker.
And yet, Trump just nominated her to the Fed, anyway.
Shelton won that nomination Tuesday night after a weeks-long campaign that included a stay at the Trump International Hotel, and repeated, public assurances that she is not a principled crank, but merely a partisan hack.
The woman who called it “highly immoral” to pursue monetary stimulus when Barack Obama was presiding over double-digit unemployment recently promised to expand the money supply “as expeditiously as possible” if nominated to the Federal Reserve’s board of governors. Here’s how she accounted for the dissonance between her past and present positions in an interview with the Wall Street Journal: “When you have an economy primed to grow because of reduced taxes, less regulation, dynamic energy and trade reforms, you want to ensure maximum access to capital.”
In plain English, Shelton is saying that the Federal Reserve should work to maximize access to credit and employment if (and only if) the elected branches of government are implementing conservative economic policies.
This is about as close as a Fed nominee can come to promising to serve as a partisan hack. Shelton’s explicit position is that when the economy is “primed to grow” — because Republican fiscal policies are in place — then money must flow freely, regardless of macroeconomic conditions. If the economy isn’t so primed, then the Fed must allow millions to go without work so that the monied classes don’t lose one iota of their purchasing power.
If this sounds like an unfair interpretation of Shelton’s remarks, note that they makes little sense in substantive terms, even to Shelton’s fellow conservatives. As Bloomberg’s Ramesh Ponnuru writes:
If Trump’s policies have increased productivity, as Shelton claims, it’s a reason to raise rather than to lower interest rates. In an economy that is limping along with a trend growth rate of 2% a year, low rates might temporarily produce faster growth. If the Trump administration has achieved its goal of raising the trend growth rate to 3%, we will have faster growth without that boost.
Trump’s other new nominee to the Fed board, executive vice president of the Federal Reserve Bank of St. Louis Christopher Waller, appears to be a serious and scrupulous choice. Waller ostensibly shares Trump’s (probably correct) view that the U.S. still hasn’t achieved full employment, and thus, there’s little reason to fear that a continuation of accommodative monetary policy will trigger spiraling inflation. But there is no evidence that he adopted this stance opportunistically. And there doesn’t seem to be any record of him suggesting that inflation is expropriation by another name.
A minimally responsible Senate would let Shelton’s nomination go the way of Stephen Moore’s and Herman Cain’s. There are more decent technocrats where Waller came from.