The Senate is preparing to vote on an appointment by President Trump that could seriously tarnish a vital American institution.
Not the Supreme Court — the Federal Reserve Board.
Trump backers are making a furious push on behalf of Judy Shelton, a Trump economic advisor whose only ideas are bad ones and who is willing to abandon even those to curry favor with the president.
It isn’t clear if Shelton has the votes. Two Republican senators — Susan Collins of Maine and Mitt Romney of Utah — oppose her nomination. In the Senate Banking Committee, her nomination was controversial even among Republicans. But she squeaked by, 13 to 12, in a party-line vote.
Trump remains fully committed to Shelton, and the White House is pushing for her confirmation. Principled senators must not let it happen.
There are two urgent reasons for opposing Shelton. The first is her consistent advocacy of far-right economic ideas. Her defenders consider her a breath of fresh air. But Shelton has never displayed any insightful analysis or sign of deep thinking. Rather, she embraces anti-establishment sound bites that have been debunked by painful experience.
Although she has been writing on the fringes of monetary policy, forecasting doom and runaway inflation since the 1980s, she has made no contribution to economic thinking. Milton Friedman, the late economics Nobel laureate, at the time Shelton’s colleague at the Hoover Institution, wrote in 1994 of a Shelton op-ed, “It would be hard to pack more error into so few words.”
For most of her career she has been an enthusiastic proponent of the gold standard, a throwback to the 19th century. In the modern era, the amount of liquidity needed by complex societies does not conform to the amount of ore underground or of metal lying in vaults.
Tying the currency to gold wrecked Britain’s economy in the 1920s. A few years later, the Federal Reserve’s affection for gold severely worsened the Great Depression. (Think of adherence to the gold standard as the financial equivalent of judicial originalism, a reverence for what is antique without regard to what works.)
She also wants a “rules-based” Federal Reserve policy — the seductive theory that a formula or computer should set interest rates. But formulaic rules cannot anticipate unforeseen events, which sooner or later will occur.
Indeed, such rules would have prevented the Fed’s emergency rate cuts during the 2008 crisis. Those cuts — which Shelton vigorously denounced along with Fed bond purchases — played a major role in ending the recession in less than two years, in contrast to the Great Depression, which lasted for the better part of a decade.
In the midst of the 2008 crisis, Shelton, in Trumpian fashion, denigrated the Fed, calling it equivalent to “the old Soviet State Planning Committee.” No wonder that more than 100 economists, including seven Nobel winners, have signed a letter urging Shelton’s rejection. I asked one of them, Alan Blinder, a former Fed vice chairman, how he rated Shelton on a scale of 1 (the worst) to 10. Blinder replied, “1.”
As improbable as it might sound, Shelton’s screwy ideas are perhaps only her second-most serious disqualification. Understand, first, that the Fed Board has only seven governors. They try to work by consensus, because their policies are more effective when the public senses they are broadly supported.
Remarkably, even in this day and age, the Fed has generally avoided accusations of partisanship. Ben Bernanke’s recession-fighting policies were the same under George Bush as under Barack Obama. If investors and others feared that the Fed was playing politics, the result would be chaotic and destabilizing.
After Obama took office, in the wake of the mortgage crash, Shelton repeatedly criticized the Fed’s low-interest rate policies. In 2016, prior to the presidential election, she attacked the central bank’s “meddling” for doing “more harm than good” and praising candidate Trump for taking aim at the “political” Fed. Some people have no sense of irony.
In office, Trump has relentlessly pushed for low interest rates and threatened to fire Jerome H. Powell, the Fed chair and one of his best appointments, first for raising rates and then for not cutting them as quickly as Trump would like.
With Trump in power, Shelton has patently lobbied for an appointment. She has walked back support for the gold standard and other fringe ideas and become a convert to low interest rates. In a 2019 op-ed in the Wall Street Journal, she urged the Fed to pursue “coordinated” policies with Congress and the president.
We don’t have to wonder how that would work. In the early ‘70s, President Nixon demanded just such “coordination”— he wanted low interest rates to ensure his reelection. Fed Chairman Arthur Burns complied. The result was the worst sustained inflation in the country’s history.
Independence is vital to the Fed’s economic stewardship. Shelton’s fawning embrace of the only politician to take her seriously undermines any claim that she would resist political pressure. With Powell’s term set to expire in 2022, it’s quite possible that, if reelected, Trump would seek to promote Shelton to chair.
If Republican senators care about a stable and prosperous economy, they cannot in good conscience put Shelton on the Fed Board.
Roger Lowenstein is the author, most recently, of “America’s Bank: The Epic Struggle to Create the Federal Reserve.”