The nomination [of Stephen Moore for the Federal Reserve Board] has stirred a lot of controversy. Writing in the New York Times last week, Harvard economics professor N. Gregory Mankiw, who was chairman of the Council of Economic Advisers under President George W. Bush, accused Moore of being “a propagandist, pushing for conservative causes, often with flimsy arguments.” Democratic Senators are expected to vote against Moore’s nomination and even a few Republican Senators have expressed skepticism.
You might think that I, who often agree with Stephen Moore on economic policy, would favor his nomination. I don’t. Before you jump to conclusions, this has nothing to do with personal animus towards him. He and I spoke at the same event at Southern Methodist University in 2010 and got along quite well. I rather like the guy. Instead, it’s simply that I think he’s unqualified. But we shouldn’t overstate the case against him. The case against having Moore on the Fed does not depend on the idea, as Mankiw seems to believe, that the Fed is a great organization. It’s not. And there’s a strong case against having a central bank in the first place.
These are the second and third paragraphs of my latest article for the Hoover Institution’s “Defining Ideas.” The article is titled “Wrong for the Fed.” Writing it gave me the chance to do two things: (1) the one implied by the title–explain why Stephen Moore would not be a good fit at the Fed, and (2) lay out the Fed’s sorry record over its more than 100 years and explain that there’s a surprisingly (to most people) strong case against having a Fed.
Read the whole thing.
READER COMMENTS
Roger D McKinney
Apr 17 2019 at 6:45pm
Another great paper is Financial Stability Paper No. 13 – December 2011, “Reform of the International Monetary and Financial System” by the Bank of England’s Oliver Bush, Katie Farrant and Michelle Wright. It shows much greater stability under the gold standard even with meddling by the government.
I’m still not convinced by NGDP targeting. I don’t think it will be any better than inflation targeting. The Fed can forecast NGDP out only one quarter with any reasonable accuracy. But their policies take up to 5 years to achieve max impact. As a result, they will over correct all of the time and, as usual, make monetary policy pro-cyclical. The best Fed policy would be tracking the price of gold futures and the stock market.
Philo
Apr 18 2019 at 10:13am
The best version of Market Monetarism would have the Fed targeting not NGDP, but the market forecast of NGDP, which could easily be obtained by setting up an NGDP futures market. And what is the basis for positing a five-year lag in the effectiveness of changes in Fed policy? In fact, the stock market seems remarkably sensitive to announcements by the Fed.
Roger D McKinney
Apr 18 2019 at 8:30pm
I doubt that the market can forecast NGDP any better than the Fed. The 5 year lag is based on an econometric study of the cumulative effect of fed policy on inflation. The difference between GDP and NGDP is inflation. And while the stock and bond markets immediately react to a change in Fed policy, the immediate effect isn’t then end of it. It keeps accumulating until the Fed changes policy again. I think the Fed should watch the stock market, but not use it to forecast anything. It should try to keep the market from getting too far above a moving average.
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