Save the Fed

Judy Shelton, Trump’s latest unqualified and dangerous nominee to the Federal Reserve Board, must be rejected.

Originally published in the New York Times

Having failed in past attempts to put unqualified ideologues on the Federal Reserve Board, President Trump is giving it another try — and is closer to victory than previously.

The nominee in question — Judy Shelton, known for taking long-discredited positions on the monetary system — makes Mr. Trump’s earlier rejected choices seem almost conventional. Among other heretical stances, she has supported the abolition of the Federal Reserve itself, putting her in a position to undermine the very institution she is being nominated to serve.

“Why do we need a central bank?” Ms. Shelton asked in a Wall Street Journal essay in 2009. She wants monetary policy set by the price of gold, a long-abandoned approach that would be akin to a Supreme Court justice embracing the Code of Hammurabi.

Regrettably, after much hesitation and with evident reluctance even from Republicans, the Senate Banking Committee voted Tuesday to advance Ms. Shelton’s nomination to the full Senate. We mustn’t let her nomination become overshadowed by the many other daunting challenges we face at the moment. When her name reaches the full Senate floor, four Republicans must find the courage to join the Democrats in voting no and rebuffing her appointment.

The Federal Reserve is an indispensable player in managing our economy. Period. It has also, commendably, remained largely free of partisanship. The nominees of past presidents, Democrats and Republicans alike, have chosen to work collegially and without personal agendas to fulfill its critical mission.

Now, as he has done so often elsewhere in the government, Mr. Trump is doing his best to politicize this remarkable institution.

For starters, had Ms. Shelton’s prescriptions been followed, the Fed’s response to the arrival of the virus would have been disastrously wrong instead of extraordinarily constructive.

Her view that interest rates should be “rules based” would have prevented the central bank’s emergency cuts.

Her past opposition to the Fed buying bonds to help stimulate the economy — as it did successfully during the 2008 financial crisis — would have prevented the central bank from standing up many of the rescue programs that are now helping to keep the economy afloat.

Her notion that the Fed must consult with Congress, rather than act independently as is considered the best practice among developed countries, would have introduced damaging delays, politics and, likely, policy misfires as ill-equipped members of Congress tried to grapple with the intricacies of monetary policy.

Then there’s the gold standard, a significant culprit in deepening the Great Depression and abandoned decades ago by every country in the world (including the United States in 1973). By rigidly fixing prices to a single commodity, a gold standard exaggerates economic swings, on balance for the worse.

Between 1880 and 1933, the United States experienced at least five full-fledged banking crises; in the past 87 years, we’ve had two. Though promoted as smoothing price movements, a gold standard in fact magnifies them, as a comparison of the pre-Depression period to the post-World War II era makes clear.

In a 2012 poll, not one of 40 prominent economists supported disinterring this misguided policy.

A few other weird ideas from Ms. Shelton: She has questioned the accuracy of government statistics. She wants a single currency for North America. (Does she not know how badly the euro has worked?)

On at least two existential issues, Ms. Shelton has shown a willingness to not let principles stand in the way of career advancement. Until her confirmation hearing, she backed getting rid of federal deposit insurance, a key protection for individual savers. Her long opposition to low-interest rates notwithstanding, last year she flip-flopped to Mr. Trump’s view that low rates are, in fact, a great idea.

Concern within the Senate Banking Committee was obvious during its protracted consideration. “Nobody wants anybody on the Federal Reserve that has a fatal attraction to nutty ideas,” John Kennedy, Republican of Louisiana, said in February. But then, like so many Republicans unwilling to cross a revengeful president, Mr. Kennedy capitulated.

To be sure, one iconoclastic and outspoken member of a seven-person board (who are part of a 12-member committee that sets interest rates) may not change the Fed’s decisions. But if Mr. Trump wins re-election, he will have the chance to nominate a new chair of the Fed when Jerome Powell’s term expires in 2022.

Although he appointed Mr. Powell to the chairmanship, at times since then the president has taken to Twitter and other forums to assail him for raising rates in December 2018 and for taking too long to lower them in 2019.

God help us if the next chair is Ms. Shelton or anyone else with her views. Senate Republicans must recognize this danger and show some backbone.