A friend who works in the financial sector and follows my blogs emailed me recently to suggest that I write something on the nomination of Stephen Moore to the Board of Governors of the Federal Reserve. I did not go for it, thinking that plenty of other bigger guns had already done so.
Then Thursday’s news hit: President Trump is considering nominating Herman Cain along with Stephen Moore. In my world of academic economics and central banking, this is pretty alarming.
{mosads}As for Moore, author of “Trumponomics,” we have the relatively polite assessment of former George W. Bush Council of Economic Advisors Chairman and Harvard Professor Gregory Mankiw that “he does not have the intellectual gravitas for this important job.”
Or, we could refer to Paul Krugman’s opposition to CNN even booking Moore, citing that Moore “has been caught many times” making factual errors.
Moore’s economic misfires are widely documented. The example making its way around the media is Moore’s insistence that an economy is in deflation if some prices are falling. It’s common knowledge that deflation is a decrease in the overall price level of the economy.
Furthermore, Moore insists that former Federal Reserve Chairman Paul Volcker followed a simple rule stating that when commodity prices rise, the Fed should raise interest rates. Unfortunately for Moore, Volcker never followed such a rule.
Moore’s current position is a far cry from his stance during the Great Recession, when he warned of runaway inflation due to the Fed’s enormous increases of the money supply.
Not noticing that Japan’s money supply doubled from 1998 to 2008 without ending the country’s deflation, Moore maintained his warnings about impending inflation until recently. Now, seemingly to service President Trump’s desire for lower interest rates, Moore is warning about the exact opposite — deflation.
Moore was interviewed on NPR last week. Among the more revealing comments he made was the observation that the Fed may have too many Ph.D. economists. Why staffing the central bank with the most-qualified economists is a bad thing is a mystery to me.
Cain’s economics dossier is even thinner than Moore’s. His big moment in macroeconomics was his famous 9-9-9 plan, which would have abolished all taxes in favor of a 9-percent personal income tax, a 9-percent federal sales tax and a 9-percent corporate tax.
He and his supporters produced no serious analysis of the impact of such drastic changes, but a reasonable first approximation would be a massive decrease in federal tax revenue, blowing the federal budget deficit sky-high.
Sen. Mitt Romney (R-Utah) reacted to reports of Cain’s possible nomination by cracking: “If Herman Cain were on the Fed, you know the interest rate would soon be 9-9-9.”
Cain does have private business experience as CEO of Godfather’s Pizza. He also served as chairman of the Board of Directors of the Federal Reserve Bank of Kansas City during the 1990s.
According to the bank’s website, “Directors conduct meetings to provide the Reserve Bank insight on current and emerging issues, which is uniquely derived from direct involvement with their local communities and businesses.”
As a local business executive, Herman Cain was in a good position to provide this kind of local business input to the Kansas City Fed. But this is a far cry from understanding the challenges facing the whole U.S. economy.
Cain left the Kansas City Fed in 1996 to go into politics, so his central banking experience, such as it is, is very far behind him.
There had been some reasons to think that this administration’s attack on science and expertise of all kinds would not reach the Fed. Trump is a business person with close connections on Wall Street, after all; wouldn’t he be smart enough not to disrupt one of the main pillars of macroeconomic and financial stability in our country?
Evidently not.
Evan Kraft is the economist in residence for the Economics Department at American University. He served as director of the Research Department and adviser to the governor of the Croatian National Bank.