In The Daily Caller, freelance writer Johannes Schmidt writes “On November 8th I’m Voting For Our Next Fed Chair.” It’s an especially astute column.
While many commentators correctly have focused on the effect of the election outcome on appointments to the Supreme Court, too few have focused on the next president’s appointments to the Fed. This also is of capital importance. Schmidt writes:
The policies implemented by the Fed are especially important (albeit often insidious) because money is our society’s most basic medium of exchange. The manipulation of its value affects every day citizens both in the short and long terms. Decisions taken by central banks–be it to toy with negative interest rates, engage in endless rounds of quantitative easing, or pay banks to keep loanable funds in sterile depository accounts—inevitably impact the value of the dollars we use to buy groceries today or pay off our mortgages over the next couple of decades.
Perhaps more daunting still is the fact that a lack of rules or central bank predictability makes international trade and cooperation difficult, at best. Without central bank coherency, monetary disorder will continue “to undermine the logic of competitive markets and the notion of free trade,” as was previously noted in The Hill.
But do our candidates understand the gravity of their 2018 Fed chief appointment? Are they satisfied with our current discretionary regime and adherence to the failed dual-mandate, or do they think that a return to a rules-based monetary system is critical? Fortunately for voters, the candidates have made their views surprisingly clear.
One quibble about the letter, rather than the spirit, of Mr. Schmidt’s observation, yet decidedly nontrivial: what is customarily referred to as the Fed’s “dual mandate” is set forth in the governing statute here:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.
I am not an economist and math is not my forté. Yet I mastered arithmetic in grammar school (a comparable achievement one could wish more PhD economists, mired in stochastic dynamic general equilibrium modeling, demonstrated). The arithmetic shows three, not two, Fed mandates: “maximum employment,” “stable prices,” and “moderate long-term interest rates.”
Moreover, an abundance of empirical evidence demonstrates beyond quibble that price stability is the one and only way to bring about maximum employment and moderate long-term interest rates. In this, one infers, Mr. Schmidt and I are in full agreement. He goes on to write:
Furthermore, as Judy Shelton, co-director of the Sound Money Project, once noted, what’s polemic about publicly speaking about the Fed as a means by which to fix income and wealth inequality is that it implies action. According to Shelton, it is dangerous to view the Fed as a force for good and not “as a distorting government interloper into private-sector credit markets whose clumsy efforts skew financial rewards to savvy corporate strategists and sophisticated investors.”
Dr. Shelton, a member of Candidate Trump’s transition team economic advisory panel, is clearly on record as appreciating the classical gold standard’s excellent track record in maintaining price stability and, with that, maximum employment and moderate long-term interest rates. In other words, the gold standard is the optimal, and over the long term perhaps the only, way of achieving the mandates set forth by statute for the Federal Reserve.
An advocate for the gold standard would be the most logical successor to Chair Yellen. Dr. Shelton, along with such gold advocates as Lewis E. Lehrman (the éminence grise of the classical gold standard, whose eponymous Institute I once professionally advised) and publisher Steve Forbes (for whose publishing empire I also write) are best qualified to be appointed chair the Federal Reserve Board should Donald Trump be inaugurated as president next year.
Lehrman, Forbes, or Shelton to the Fed? These three eminent thinkers deserve to be on the very short list of candidates to chair the Trump Fed to provide the requisite support to make America great again.
Ralph Benko, internationally published weekly columnist, co-author of The 21st Century Gold Standard, lead co-editor of the Gerald Malsbary translation from Latin to English of Copernicus’s Essay on Money, is American Principles Project’s Senior Advisor, Economics.