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I have a confession to make: I love the Federal Reserve. And I suspect that in the bottom of their hearts most economists also like the Federal Reserve. But I fear that our love is in danger.
We live in a time when many public institutions seem to be lacking. The White House is in constant turmoil, with an extraordinarily high turnover rate among key staff members. Congress is as polarized as ever, having done nothing more in the last two years than spending the brunt of the 2017 tax bill. Even the Supreme Court seems less impartial and more partisan than ever before. It should not be.
I had a habit of thinking that our higher education system held a prominent place among our institutions. But now I'm less sure. Although I have known for a long time that the system is far from perfect, its brilliance has been tainted recently by the issues raised in the Harvard lawsuit, in which American Asian claimants claim discrimination, and by the scandal of admissions into the United States. colleges, in which wealthy parents have been accused of cheating so that their children go to the best schools.
Which brings me back to the Federal Reserve. The country's central bank employs about 20,000 Americans. They monitor the economy, develop analyzes to help define monetary policy and regulate the banking system. None receive extraordinary salaries found in private banks in the country. But they do their job with solemnity and tenacity and without a hint of scandal. And, most importantly, they do their job well.
At this point, you could say, "Whoa, Nelly! Have you ever forgotten the financial crisis and the Great Recession? "
However, the Fed's inaction at that time, even though it was wrong, did not diminish my love for our central bank. Given the human fallibility and unavoidable imperfections of information, institutions, such as people, should not be judged by the standard of perfection. They should be judged by how well they do their best. According to this standard, I give the Fed an excellent rating.
The success of the Fed as a public institution stems from two essential ingredients.
The first is a clear, non-partisan and widely shared mandate. The Federal Reserve Act gives the central bank the objectives of "maximum employment, stable prices and moderate long-term interest rates". In pursuit of these goals, the Fed aims "to provide the country with a safer, more flexible and more stable policy". monetary and financial system. No reasonable person can doubt the value of this mission.
The second ingredient of the Fed's success lies in the talent of the people who dedicate their lives to it. Each year, the Fed recruits new research assistants from the best colleges and new salaried economists among the best doctoral students. programs in economics. Over the years, I have experienced many excellent students who have held these jobs. For someone interested in economic policy, there is no better place to work.
At the top of the organization is the board of governors of the Federal Reserve. Appointed by the president and confirmed by the Senate, the governors have a 14-year term. Like the lifetime appointments of federal judges, the long-term mandates of the Fed's governors are aimed at ensuring the independence of political pressure.
What fund is necessary to reach this exalted position? This is usually recognized expertise as an economist or substantial experience in the financial sector.
President Trump, of which I am not a fan, has made some excellent appointments to the Fed, including Jerome H. Powell as Chair of the Board, Randal K. Quarles and Richard Clarida as Vice-Chairs . Marvin Goodfriend and Nellie Liang, hired by the president but unconfirmed, were also good choices.
But recently, the president has changed course, saying that he wanted to name Stephen Moore and Herman Cain on the Fed Board of Directors. These two men are scandalously inappropriate.
Although the the president wrote on Twitter that Moore is "a highly respected economist", he is not. He is a propagandist who advocates for conservative causes, often with weak arguments. Mr. Cain has been a manager at a pizza company and presidential candidate, but he has no degree in economics and has little experience in finance.
In 2011, Republican Senator Richard C. Shelby of Alabama, who currently chairs the Senate Banking Committee, prevented Peter A. Diamond from becoming Fed Governor. Mr. Diamond was a Ph.D. economist, professor at the Massachusetts Institute of Technology, and Nobel Laureate in Economics.
Mr. Shelby explained his decision by stating that Mr. Diamond did not have sufficient experience of the economy and monetary finances. Moore and Cain also do not have this experience, but they do not possess the intellectual gravitas that Mr. Diamond would have brought to work.
It is unclear whether Mr. Moore and Mr. Cain will be confirmed, especially in the light of the reports, that the two men are contesting, that Mr. Moore hasunable to pay child support and owes more than $ 75,000 in federal taxes and that Mr. Cain committed sexual misconduct. But as a lover of the Fed, I am particularly concerned that they are just not qualified and I hope the Senate will reject them if they are named.
There may not be a lot of big public institutions left. But the Federal Reserve is one of them. Let's continue like this.
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