The process for nominating the next chair of the Federal Reserve System has changed beyond recognition. President Donald Trump has turned the decision-making into something akin to a game show, where suspense is maximized, and the debate is similar to “who gets voted off the island.” Although this circus harms our politics generally, it is a new and novel way of politicizing monetary policy.
The Fed over time has done a good job establishing its relative independence and, for the most part, the federal government has been supportive. The fear had been that a president might summon a Fed chair and request easy money to boost his re-election prospects, as President Richard Nixon did with Arthur Burns in the lead-up to the 1972 election. We’ve avoided that scenario so far under Trump, but a subtler and more insidious form of Fed politicization may set in: The mystification of the Fed may be replaced by an extreme banalization.
Previous Fed chairs took great care to speak in ambiguous terms, to give the impression of wisdom, to make it clear they are above daily politics. That was true of Paul Volcker, Alan Greenspan, Ben Bernanke and Janet Yellen, albeit with different rhetorical styles and strategies. The Fed has been a kind of Mount Olympus or high priestly caste. Perhaps the Fed has not always used that influence for the better (recall Greenspan’s easy money decision in 2001, or the lead-up to the financial crisis), but this arrangement is better than the president and Congress calling more of the shots.
Enter Trump, master impresario and provocateur. By thinking out loud about the post and the candidates so much, polling both a group of assembled senators and TV anchor Lou Dobbs, and by teasing the audience with the final pick, Trump is removing that elevated air from the Fed. I am reminded not only of today’s reality TV, but also the older show “The Dating Game” and the 1987 Arnold Schwarzenegger movie “The Running Man.” Whether we are consciously aware of the shift in our perspective or not, we are likely to think of the future Fed with less of that mysterious aura surrounding it. It will instead seem like the result of an undignified competition for victory and status.
So when Trump praises Yellen, maybe he really does like her and the good job she has done. But he is also signaling that she should be courting his kind words and that approval can be withheld. If my dean or provost said about me something like: “You like to make your own mark which is maybe one of the things she’s got a little bit against her, but I think she is terrific,” I wouldn’t exactly feel thrilled. He is making the process all about Donald Trump, and trying to show that men are not only allowed to condescend to women but indeed are expected to.
I was struck by a video Trump issued at the end of last week, a media promo for his Fed chair selection. He claims “people are anxiously awaiting my decision,” surely not true for the general public. Near the end he refers to the forthcoming wonders of the next eight years. That number, of course, elevates the import of his presidency, as the term for the Fed chair is only four years. Along the way, he tells us he has “somebody very specific” in mind, a phrase of literal nonsense but also a subtle denigration of the candidate, by emphasizing the selection and unveiling over the person, and by treating the individual as most of all the object of Trump’s choice.
And by presenting such an intellectually diverse choice of potential Fed candidates, Trump is driving home the point, whether he knows it or not, that the final selection really could have been some fairly different point of view. What kind of aura is that?
By the way, is it a total coincidence that the Fed chair appointment will be probably come the same week as special counsel Robert Mueller’s investigation leads to indictments? The Fed publicity might blunt the negative impact of the legal proceedings, while simultaneously throwing the chair choice in with the larger circus of Trump’s administration.
When Trump wants something from the Fed, maybe he won’t sit down with the Fed chair and issue dictates. That isn’t his style anyway, in part because he doesn’t have the expertise to figure out the preferred manipulation, and in part because he doesn’t have the patience for the required monitoring and follow-up.
Instead, he’ll let social media and the public debate do his dirty work of politicization for him, with perhaps a jab of his own thrown in from Twitter. Because the Fed will no longer be above the fray.
Tyler Cowen is a Bloomberg View columnist. He is a professor of economics at George Mason University and writes for the blog Marginal Revolution. His books include “The Complacent Class: The Self-Defeating Quest for the American Dream.”