Editorial: Change the Elitist Culture of the Federal Reserve

In 1939's Gone With the Wind, a Southern belle takes a nouveau riche's hand in a dance. This is to the chagrin of her Aunt Pittypat, who exclaims, "Oh dear, oh dear, where are my smelling salts? I think I shall faint!"

Stories of landed gentry finding true love outside of caste-based parameters, much to the disapproval of the vieux riche, are as old as time. Now, in the made-for-television era of President Donald Trump, the narrative of class struggle is playing out in the unlikeliest of arenas: monetary policy.

Through posts on Twitter, the president announced that he will nominate Herman Cain and Stephen Moore to the Federal Reserve Board of Governors. Cain, a restauranteur, was formerly chairman of the Federal Reserve Bank of Kansas City and president of the National Restaurant Association. Moore, the co-founder of the Club for Growth, is a prominent economic commentator currently serving as a fellow at the Heritage Foundation. Moore's credentials are burnished by the fact that he regularly collaborates with the inventor of the Laffer curve, Mr. Art Laffer himself.

The news of Cain and Moore's nominations catalyzed a healthy dose of vitriol from the establishment media, whose elitist disgust mirrors that of Aunt Pittypat.

According to Vanity Fair, the nomination of Moore "could endanger one of the last serious, fact-based institutions in Washington." New York Magazine observes that "Trump Wants Herman Cain on the Fed Because He's an Unqualified Hack." Per The Atlantic, the appointments represent "yet another of Donald Trump's many attacks on our democratic institutions, and we will have to endure their effects long after he has left the White House."

Should someone submit a letter-to-the-editor to The Atlantic and note that the Federal Reserve was specifically designed to be insulated from democratic whims?

But we digress lest we miss the forest for the trees, which would be a calamity: The overgrown woods of the establishment media undoubtably need tending.

The news reports would have America believing that Cain and Moore want to immolate the nation's monetary infrastructure in exchange for presidential pats-on-the-back. However, the truth could not be more different, and the media's steady stream of distortion shows that their lifeblood is an elitist, staid, and ideologically homogenous Federal Reserve.

Eccles Building

Consider the present state of affairs at the Eccles Building, home to the Federal Reserve. The flavor of the decade is the Phillips curve, which states that declining unemployment precipitates inflation, and this theory has unchallenged monopoly power among the monetary bureaucracy.

During the Trump presidency, the Federal Reserve has gone from revering William Phillips to inscribing his dictates into policy: In line with his eponymous curve, the Board of Governors has increased the federal funds rate seven times with the express intention of dampening economic growth. Worse yet, at least four of these increases occurred amid zero internal opposition.

The economy has suffered because of the Federal Reserve's lack of heterogeneity. Between the sixth increase in the federal funds rate (September 27, 2018) and the seventh (December 20, 2018), the Dow Jones industrial average plunged 3,580 points. Days later, the DJIA bottomed out at just 21,792 points, a full 4,648 points below where it was on September 27th.

Although it is becoming more catastrophic by the day, intellectual oligopoly within the Federal Reserve System is not a new phenomenon. Ever since the interest-rate revolt against Chairman Paul Volcker in February 1986, the monetary bureaucrats have had a disturbing propensity for groupthink. 

However, unlike most problems in Washington, D.C., the root cause for the Federal Reserve's ideological homogeneity is readily apparent: Seats on the Board of Governors are oftentimes sinecures given to tenured academics, conditioned on the expectation that they will follow the chairman's lead.

For Washington, precedent is precedent: Clinton appointed his academics, Bush appointed his academics, Obama appointed his academics. These picks had their niches, but reverence for the Phillips curve and the chairman's supremacy served as a unifying agent.

Now, there is a new president and he plays by a different rulebook: Unlike the rest of the capital's underachievers, when Trump sees a problem, he corrects the problem. The current economic ailment is Federal Reserve groupthink, and Herman Cain and Stephen Moore are the antidote.

While they have different skillsets, both nominees are qualified members of the private sector who have an innate understanding of how monetary policy affects Main Street's fiscal vitality. Cain participated in the economy as CEO of Godfather's Pizza, whereas Moore has examined the minutiae of fiscal policy as an economic commentator.

As supply-siders with experience in the private sector, Cain and Moore are interested in fiscal policy first and foremost, a characteristic that will make them unique voices on the Board of Governors. However, they have shown that they know the kind of monetary policy America needs.

Herman Cain (ABC News)

Cain endorsed the gold standard in a May 2012 editorial. Then, Cain noted that the "more complex a society, the more it depends on fixed and rigorously reliable standards," declaring that the "dollar should be defined ... as a fixed quantity of gold."

FDL Review emphatically supports the gold standard, but we realize that it would be difficult for Cain to bring about such a radical shift in monetary policy as one of seven governors in a technocratic institution. However, Cain's advocacy for a gold dollar shows that he has the right approach: an emphasis on establishing a stable currency, as measured by its standing relative to commodity prices.

Cain reaffirmed this stance in an editorial published by The Wall Street Journal, "The Fed and the Professor Standard." He writes, "The dollar is a unit of measure ... and keeping units of measure stable is critical to the functioning of a complex economy," noting that the result of previous "stable-dollar polic[ies] was prosperity."

Cain's career and writings show that he is committed to currency stability and monetary policy that spurs economic growth. His perspective would be a major boost to the Federal Reserve, moving it one step toward intellectual heterogeneity.

Stephen Moore (The Washington Post)

Stephen Moore, for his part, would contribute another step in the right direction. He has advocated for the gold standard on at least eight occasions, saying in September 2010 that he wants "to re-establish some kind of gold standard in America so the dollar retains its value."

While Moore's politically-expedient position is support for a dollar tied to a basket of commodities, not just gold, his past advocacy for a gold dollar shows that his instincts are sound. Moreover, Moore has shown that he is committed to a policy of economy, where the Federal Reserve does what is best for American commerce without strict adherence to abstract, untested theory (e.g. the Phillips curve).

Moore's balance is solid, as one of his propositions (a commodity basket) would restrain inflation, whereas his other one (emphasis on a strong economy), may contribute to inflation. If implemented in tandem, this monetary policy duet would ultimately provide a harmonious balance.

The appeal of Moore's policy of economy, as well as Cain's support for stable money, should take precedence over gossip regarding their private lives. Ad hominem attacks of this sort are as productive as schoolyard taunts (that is, not at all).

Instead, we should focus on Cain and Moore's professional conduct as well as their policy proposals. By both metrics, the nominees are sound: They present an opportunity to undo the Federal Reserve's culture of elitism. No more Aunt Pittypat attitudes; yes to the real-world application of economic concepts by those who have actually walked the talk.

President Trump, if you seek to give the bully pulpit to supporters of stable, pro-growth monetary policy, officially nominate Herman Cain and Stephen Moore to the Board of Governors. United States senators, if you seek intellectual heterogeneity at the Federal Reserve (as is the case in the Senate), vote resoundingly to confirm the president's nominees.