Trump shows the world how not to manage a central bank

When the Bank of Canada sought to fill a vacant position on its executive board responsible for policy development in 2018, it hired a global executive recruiter and posted a long list of qualifications.

The bank said the candidate had to have a "deep and thorough knowledge" of macroeconomics, monetary theory, financial markets and the payment system, as well as experience in the design and management of the bank. use of large macroeconomic models, as well as experience as a good manager, communicator and analyst. Oh, and they should be able to speak both official languages.

Contrast this with US President Donald Trump, who enthusiastically went after the former boss of the pizza chain Herman Cain to join the US Federal Reserve.

"He's a friend of mine. That's someone who understands it, "Trump told reporters.

After five months of research, the Bank of Canada quietly hired the renowned macroeconomist Paul Beaudry from the University of British Columbia last December.

Cain's candidacy for the Fed is not going as well as the opposition grows to Mr. Trump's ill-considered choice, even among Republicans.

The US Senate, which has to confirm the top officials of the Fed, could do what is right. What is more disturbing is that Mr. Cain, without experience in economics or finance, was in the running.

Mr. Trump's statement that Mr. Cain "understands" is what the President really wants: a loyal supporter committed to preserving the US economy with easy money just enough time to have him re-elected. 'next year.

The danger is that Mr. Cain's controversial bid is a diversion designed to distract from Trump's alternative choice of filling one of the two vacant posts at the Fed – the libertarian economist Stephen Moore – or to give the appearance of following candidates.

Like Mr. Cain, nothing in Mr. Moore's history indicates that he is ready for the Fed. Do not look for in-depth knowledge of macroeconomic models and monetary theory on your resume. Mr. Moore has devoted his entire career to television, the Republican principles of tax reduction and small government, and more recently to Mr. Trump. His views on the Fed have evolved according to the people at the White House. When Barack Obama was president, he warned repeatedly against the danger of keeping rates low for a long time. The economy was even hotter after Trump's election, so he decided to ask for rate cuts. As economist Greg Mankiw, former economic adviser to US President George W. Bush, economist at Harvard University, said this in a recent blog post: Mr. Moore does not have the "intellectual gravitas" for the post.

Rejecting Mr. Cain should be obvious. He faced several credible allegations of sexual harassment, which helped to derail the 2012 Republican presidential nomination race. His economic ideas are sidelined, particularly in favor of a return to the polls. Gold standard and a dangerously regressive tax overhaul in an era of growing inequality. And he peddled plots that the government was simulating economic statistics – the same as those used by the Fed to direct its monetary policy. He also set up a political fund that raised funds for Trump's favorite candidates in mid-term elections last year.

Mr. Trump, of course, is fine with that. What he wants is someone – no matter who – who will ask the Fed and its president, Jerome Powell, to do what he wants. "

No law says that members of the Federal Open Market Committee must leave their political opinions at the door. But they have, by convention, made the Fed a rarity in the hyper-partisan Washington. This allowed the central bank to shift interest rates, control inflation and regulate financial institutions, largely without political interference.

The presence of loyalists inside would threaten the independence of the Fed and allow future presidents to do the same.

Fortunately for Mr. Powell and the Fed, the bank's structure would prevent Trump's choices from doing too much partisan nonsense. They would have only two out of 12 votes at the FOMC, which is made up of seven Fed governors and five alternative directors of regional reserve banks.

Recognizing the seriousness of the issues, former Fed President Janet Yellen warned last week that Senators have a responsibility to put on the Fed "skilled people" committed to the independence of the central bank.

There is no doubt that Ms. Yellen has a few more candidates like the Deputy Governor of the Bank of Canada, Paul Beaudry, and less like Mr. Cain or Mr. Moore.