Watch Live: Vindman, Williams Testify In Tuesday Impeachment Doubleheader
The impeachment circus is back on Tuesday as the public phase of the Dems’ investigation enters its second week with the public testimony of Lt. Col. Alexander Vindman, the top Ukraine specialist on the National Security Council who has objected to President Trump’s alleged decision to press Ukrainian Prime Minister Volodymyr Zelensky to investigate the Bidens.
Vindman isn’t the only one who will testify Tuesday: Kurt Volker, a former special envoy to Kyiv who reportedly told lawmakers in private that the White House decision to withhold military aid was “not significant” and Ukraine’s leaders “never communicated a belief that there was a quid pro quo”, will also appear before the Intelligence Committee.
Two other senior officials, Jennifer Williams, a national security veteran detailed to Vice President Mike Pence, and outgoing NSC staffer Tim Morrison, will also testify.
Dems have been working to impeach President Trump since a “whistleblower” believed to be a CIA analyst complained that Trump had risked undermining US foreign policy to pursue personal political ends. Keep in mind: A rough transcript of a call between Trump and his Ukrainian counterpart that took place on July 25 was released weeks ago, allowing members of the public to make their own decisions about what they think they heard.
Watch the hearing live below:
All four of these witnesses have already testified before lawmakers in private sessions. Vindman, who has suspiciously advised the government of Ukraine in addition to working full time for the US, was on the July 25 call at the center of the impeachment probe. Volker wasn’t on the call, but he was a part of the shadow campaign led by Rudy Giuliani and the President to press the Ukrainians to investigate Hunter Biden over his links to a gas company suspected of paying bribes and other corrupt activities.
Morrison, meanwhile, has testified that Ukrainian ambassador Gordon Sondland in September told a top Ukrainian official that the release of US military aid to the war-torn country would hinge on whether Kyiv opened an investigation into the Bidens.
The witnesses will testify 2 at a time during Tuesday’s most packed hearing to date. Vindman and Williams will kick things off at 9 am, followed by Volker and Morrison around mid-afternoon.
Blain: “It Makes Me Wonder Where All The Liquidity The Fed Is Pumping Is Going”
Blain’s Morning Porridge, submitted by Bill Blain
“Damned if we do, damned if we don’t.. pass me a penny.. ”
The global markets continues to wobble along. Trade deal or no deal..? Lots of talking heads saying it might happen, it might not, the potential credibility costs if its not. Meanwhile, all eyes on Hong Kong to see how the current university standoff plays out. The Chinese upped the ante this morning: – China attacks Hong Kong ruling to overturn Mask Ban. (Slightly concerned to read HSBC has apparently reacted to Chinese pressure and closed down accounts related to the protest movement.)
Fed Vs Trump
I would have loved to have been a fly on the wall at yesterday’s confrontation meeting at the White House between Donald Trump and Fed Head Jerome Powell. They apparently had a convivial 30-minute chat where Trump lambasted, laid out his concerns the US is putting itself at a competitive disadvantage in terms of higher interest rates and a strong dollar. These factors have failed to fuel inflation and heightened trade tensions with EU and China. Trump protested his view US rates should be lower than competitors because, er, the US is the US.
At my meeting with Jay Powell this morning, I protested fact that our Fed Rate is set too high relative to the interest rates of other competitor countries. In fact, our rates should be lower than all others (we are the U.S.). Too strong a Dollar hurting manufacturers & growth!
Its an interesting take on economics. Low rates typically mean a weak economy. But, you can see Trump’s perspective – if money to invest is cheap and abundantly available, then it stands to reason entrepreneurs should be borrowing loads to invest in new plant. But reason is precious and rare commodity. When working out the value of any investment, low rates and higher relative returns elsewhere mitigate against risky new ventures and towards available financial assets – for instance; stock markets. That’s the brutal reality of the last 10 years – all that lovely money central banks created through QE, that was supposed to fuel growth through economic multiplier effects, got sucked into the stock market swamp.
You live and learn… It makes me wonder where all the current liquidity the Fed is pumping into the short-end – which definitely isn’t QE except that in just about every way it is – is going? Weaker dollar? Yeah, but, Europe and Japan are also pushing the Yen and Euro lower.
Powell apparently stood his ground in front of Trump – making clear Fed policy will depend entirely on what the releases and data show in terms of the economic outlook. According to the WSJ, Powell told Trump rate decision are: “based solely on careful, objective and non-political analysis.” How the Fed reacts to slowing growth, or the risks that tying themselves to low rates will leave the cupboard empty if a real crisis develops, are for the Fed to determine.
Based on Trump’s previous form I would predict we’ll be seeing the Trump-Fed twitter stream ramp up negativity on the Fed’s decision making in coming months, seeking to pin blame on the Fed for any downturn, and seeking to juice the economy ahead of the Nov 2020 election. Trump clearly perceives Powell as a disappointment – he appointed him to the post, and expects Powell to support him. How dare the fellow go against him… as he said last year: “I’m not even a little bit happy with my selection of Jay.”
The issue of Fed vs President is not going away – while the market broadly believes Powell’s and the Fed’s independence is sacrosanct, and Trump can’t sack him, it damages the credibility of the Presidency that Trump still tries to bully the Fed. But – critically – it shouldn’t have that much effect on markets, because we all know that’s just the way it is…
Meanwhile… back in Blighty
Joy oh Joy.. Tonight we get a televised debate between the two most unelectable men ever to contest the UK premiership. I can’t wait… to catch up on something else instead on Netflix. The big issue is where will Sterling go? Up on a clean Brexit! Down on further uncertainty! What are we likely to get?
The problem is… this election is turning into a chancy coin toss between government and ongoing chaos. It is not providing any positive signals for our future prosperity.
Current election odds say:
2/5 Conservative Majority
5/1 Labour Minority
8/1 Conservative Minority
18/1 Lib/Lab/SNP Pact
20/1 Lab/SNP Pact
25/1 Labour Majority
These are profoundly unsettling numbers. They basically say there is a 56% chance the UK is going to get another weak and divided government. What the UK needs most desperately is leadership – a government with a working majority. A Conservative minority will be unworkable. A Labour minority will be forced to concede too much to do much – and Brexzit will drag on and on and on and on and on… Coalitions are dangerous for the UK. The SNP will demand an independence referendum – and could even win it. The very worst result would be a second Brexzit referendum which looks to be about a 47% chance of happening according to these odds – it will just ensure the UK remains fraxious, rudderless and distracted for years to come..
And the issue is.. we still have 24 days of this hell to go through. Please make it stop!
Sweden Drops Rape Investigation Into Julian Assange
Sweden has closed its rape investigation into Wikileaks founder Julian Assange, saying that the evidence against him is not strong enough for an indictment.
While all investigative steps have been taken in the case, including additional interviews with Assange, the evidence does not prove he committed a criminal act according to the prosecutor.
The Prosecution Authority added that oral testimony in the case had “weakened,” which is natural over time.
Assange has avoided extradition to Sweden for seven years after he sought refuge at the Ecuadorian embassy in London in 2012. The 48-yaer-old publisher was kicked out in May, and was sentenced to 50 weeks in jail for breaching his bail conditions. He is currently being held at Belmarsh prison in London.
This election is no longer primarily about Brexit, it’s primarily about Corbyn.
Major Disconnect
A friend of mind writes “I saw a time series that shows that every single week of the year a majority in the UK would REMAIN if there were another referendum. It was a small majority, but a consistent one. It is therefore perplexing how a party that is not going to just deliver Brexit, but a hard Brexit is polling this well. There is a major disconnect.“
Why is Johnson Polling So Well?
Here is my friend’s implied question: Why is Johnson polling so well?
For starters Johnson isn’t going to deliver a hard Brexit. It will be a negotiated Brexit. A withdrawal agreement will be signed. And despite Johnson’s rhetoric, I suspect that the WTO arrangement will be managed, and far better than the Farage clan will have you believe.
I took a close look inside some of the recent polls and there are some interesting trends that explain what’s going on.
Brexit Fading as an Issue
Brexit is fading as an issue, especially among women. Only 25% of women have Brexit as their number one issue.
And I am quite surprised by this: Only 17.1% of 18-24 year-olds have Brexit as their top issue.
Fewer and fewer believe the nonsense about “no deal” primarily because Johnson will deliver a deal.
Gender Gap Part One
40.6% of men will vote Tory but only 26% of women in the latest Survation poll.
Check out the undecideds! Only 10% of men are undecided vs a whopping 23.5% of women.
Female uncertainty is not just in the Survation poll.
Gender Gap Part Two
In the latest YouGov poll 21% of females are undecided but only 13% of men.
Is female voting uncertainty a normal state of affairs? I have not investigated enough to know.
Voting Intention Undecideds Removed
Note once again the male-female divergence.
A whopping 47.7% of men are likely to vote for Boris Johnson vs only 36.1% of women.
Note London and the whopping 58.8% Tory vote in the South. I will come back to London in a moment.
Referendum on Corbyn
My key idea to answer my friend’s question is that the election has morphed into a referendum on Corbyn and away from a referendum on Brexit.
It’s not that Johnson is very popular. Rather, Corbyn is exceptionally unpopular.
Not a Single Age Group Likes Corbyn
Spotlight London
London is the key area in England where Remainers and socialists rate to do well. Liberals abound in London just like Chicago, Los Angeles, and New York.
Yet even in London, Labour is struggling.
The current spread of Labour over the Tories is 1 percentage point. Survation has it at 3 percentage points.
In 2017 the spread was a 21.4 percentage points.
Labour is struggling mightily even in London, and even with tactical voting.
What’s happening?
It should be easy to figure out: Business owners are scared to death of Corbyn.
In Touch or Out of Touch?
For those who have Brexit as the key issue, Jeremy Corbyn ranks dead last and Johnson first.
Who Would Make the Best Prime Minister
That’s a pretty amazing poll.
A whopping 51.9% of men and 42.0% of women believe johnson would make the best Prime Minister!
Also note that Jo Swinson tops Jeremy Corbyn among women and age groups 55-64 and 65-74.
Not even 18-24 year-olds prefer Corbyn. The only demographic in which Corbyn leads is 25-34 year-olds.
… On June 13, 2019, plaintiff filed this action, alleging violations of his rights to free speech and due process. According to the complaint, plaintiff is a former Clovis High School student who recently turned 18 and finished high school. Plaintiff was scheduled to attend his graduation ceremony on May 30, 2019, when his school “revok[ed] his VIP sitting privilege in the graduation ceremony, remov[ed] him off the school premises, and enjoin[ed] him from participating in his long-awaited graduation ceremony that was by then only 3 hours away,” allegedly as punishment for a tweet that he had posted on Twitter. In that tweet, sent to a Nigerian friend on an unidentified date before his graduation, plaintiff used the words “nigga” and “nigger,” apparently with his friend’s consent and as a form of “intercultural communication.” Another Twitter user saw the tweet and reported it to the school, which, in addition to barring plaintiff from attending his graduation, “order[ed] him to delete the alleged offensive message from his [T]witter account[.]” …
Castro sued on various theories, but the one that survived the motion to dismiss (and the one I’m interested in here) was the claim that the school’s actions violated his free speech rights; and, surprisingly, the defendants’ entire argument as to free speech was,
In his first cause of action, Plaintiff alleges that Defendants violated Plaintiff’s right to Freedom of Speech under the First Amendment of the United States Constitution because Defendants disciplined plaintiff for using language that is almost universally considered to be profane in nature. Although the First Amendment of the United States Constitution guarantees broad speech liberties to persons residing within the United States, it is not without limit. Of note, certain speech activities of pupils at public schools may be limited. The California Education Code § 48907(a) states that “Pupils of the public schools, including charter schools, shall have the right to exercise freedom of speech and of the press including, but not limited to, the use of bulletin boards, the distribution of printed materials or petitions, the wearing of buttons, badges, and other insignia, and the right of expression in official publications, whether or not the publications or other means of expression are supported financially by the school or by use of school facilities, except that expression shall be prohibited which is obscene, libelous, or slanderous.” (Emphasis added.)
In this case, Plaintiff used the word “nigga” and “nigger” which was seen by someone who took offense to the use of Plaintiff s choice of words. So much so, that this (unidentified) person reported Plaintiff s speech activities to Defendants. As noted in California Education Code § 48907(a), pupils of California schools do not have the right to expression which is obscene, libelous, or slanderous. As the words “nigga” and “nigger” are universally considered obscene, Plaintiff does not have Constitutional protection for this expression. Because Plaintiff does not have any First Amendment protection for said obscene language, his First Amendment Right related to this particular expression cannot be violated.
But, as the court points out, this reflects a misunderstanding of what “obscene” means in First Amendment law.
Defendants argue that plaintiff’s free speech claims must fail because the terms “nigga” and “nigger” are obscene and therefore not protected speech. It is true that courts “have long held that obscene speech—sexually explicit material that violates fundamental notions of decency—is not protected by the First Amendment.” However, as plaintiff points out, the terms “nigga” and “nigger,” while offensive to many, are facially not sexually explicit and, thus, cannot be considered obscene under the framework set forth by the U.S. Supreme Court. Thus, defendants’ motion to dismiss on the basis that plaintiff’s tweets are obscene speech not protected by the First Amendment will be denied.
(The California Legislature could define “obscene” differently in in its statute if it wanted, but there’s no indication that it aimed to use a different definition—and in any event, the plaintiff’s claim is that the school’s actions violate the First Amendment, not the state statute.)
I think that the school’s actions (if plaintiff’s factual account is correct) did violate the First Amendment, and couldn’t be upheld on any theory. It’s true that Castro wasn’t expelled from school, or otherwise shortchanged as to his academic activities; but being denied the right to participate in an important public school ceremony—a right that all your classmates have—because of the exercise of one’s free speech rights would itself violate the First Amendment. (The logic of Lee v. Weisman, the graduation prayer case, strongly supports that conclusion, though I think the result would be the same even had the dissent prevailed there.) But in any event, the “obscenity” theory is a nonstarter.
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Voters “Numb And Disoriented” From Constant Political Drama And Fake News: NYT
After three years of fake news, fake polls and fake outrage, Americans trying to keep up with the constant barrage of political drama are ‘numb and disoriented,’ and people are tuning out according to the New York Times.
In upstate New York, Travis Trudell got an alert on his phone Wednesday morning telling him the impeachment hearings had started. He turned on Disney Plus instead. In Wisconsin, Jerre Corrigan never considered watching. She spent the day giving a math lesson to third graders. In Idaho, Russell Memory worked a busy day as a computer programmer and figured he’d catch up in a few weeks when the hearings were over. –NYT
“It’s harder now — they want to grab you with those headlines,” said Jerre Corrigan of Stevens Point, Wisconsin. “Trump did this, Trump did that. You have to go in and really research it. And I don’t think a lot of people do that.“
Meanwhile, the MSM has thoroughly discredited itself after staking their reputation that Trump would surely lose the 2016 election, then promising he’d go down for colluding with Russia, and now – promoting Democrats’ impeachment scheme like willing lapdogs without asking critical questions about Joe Biden and his son Hunter that even the Obama State Department raised in 2015.
“I just don’t know what to think. You would have to know the facts, and I don’t know that I’m getting the facts from the media right now,” said Corrigan.
And according to a recent poll cited by the New York Times, 47% of Americans believe it’s difficult to identify truthful news.
Just 31 percent find it easy. About 60 percent of Americans say they regularly see conflicting reports about the same set of facts from different sources, according to the poll, by The Associated Press-NORC Center for Public Affairs Research and USAFacts.
“Now more than ever, the lines between fact-based reporting and opinionated commentary seem blurred for people,” said Evette Alexander, research director at the Knight Foundation, which funds journalism and research. “That means they trust what they are seeing less. They are feeling less informed.” –NYT
Travis Trudell, a registered independent mentioned at the top of the story, told the Times he stopped paying attention to national news around a year ago – finding it toxic and mentally taxing, in addition to starting seemingly endless arguments at home. Instead, he focuses on local and state-level politics.
“People can see totally different things, standing right next to each other,” said Trudell. “Yes, there are shades of gray, but what about black and white? We assume that everything is a shade of gray now.”
Blaming social media and memes
The Times then segues into the impact of “powerful new digital forces buffeting American voters” through deception.
Matt Stanley, a school administrator and registered Democrat in Crum, W.Va., watched as his candidate for Congress in the midterms last year, Richard Ojeda, lost badly. The result, Mr. Stanley believes, was at least partly related to a stream of negative ads on Facebook featuring doctored photographs aimed at discrediting Mr. Ojeda, including one depicting him in makeup and a pink beret.
But the most corrosive part came later, Mr. Stanley said. It was not that people believed wrong things that they saw online, but that they stopped believing right things — or anything at all. That made him afraid for the future. How do you have a society without shared reference points, he said Thursday. –NYT
“The social media, it muddies up stuff so badly,” said the 50-year-old Stanley. “There’s so much information that’s biased, that no one believes anything. There is so much out there and you don’t know what to believe, so it’s like there is nothing.”
Meanwhile, the sheer volume of news is causing information overload and mental fatigue.
“There are certain programs, with their disdain for Trump, it just becomes the Trump-bashing show,” said 55-year-old Detroit translator Els Ruijter, a left-leaning independent. “It’s like eating French fries. It goes down nicely, but it gives me a little indigestion afterward.”
“It’s a freaking day job nowadays to keep up with stuff,” she added.
Facts?
“In the political space, you no longer have to have facts to back up your claims,” said University of Texas director for the Center for Media Engagement, Talia Stroud. “The result is a population bordering on cynicism, where people discount everything that’s opposed to their views.”
The degree of alienation is new. In the late 1970s, nearly three quarters of Americans trusted newspapers, radio and television. Walter Cronkite read the news every night, and most Americans went to bed with the same set of facts, even if they had different political views. These days, less than half of Americans have confidence in the media, according to Gallup.
The decline in confidence is particularly pronounced by party. Today about 69 percent of Democrats have a great deal of confidence in the media, compared to just 15 percent of Republicans and 36 percent of independents, according to Gallup. –NYT
Who could have predicted that years of fake news, failed proclamations, and overt partisanship would cause rational minds to recoil.
… On June 13, 2019, plaintiff filed this action, alleging violations of his rights to free speech and due process. According to the complaint, plaintiff is a former Clovis High School student who recently turned 18 and finished high school. Plaintiff was scheduled to attend his graduation ceremony on May 30, 2019, when his school “revok[ed] his VIP sitting privilege in the graduation ceremony, remov[ed] him off the school premises, and enjoin[ed] him from participating in his long-awaited graduation ceremony that was by then only 3 hours away,” allegedly as punishment for a tweet that he had posted on Twitter. In that tweet, sent to a Nigerian friend on an unidentified date before his graduation, plaintiff used the words “nigga” and “nigger,” apparently with his friend’s consent and as a form of “intercultural communication.” Another Twitter user saw the tweet and reported it to the school, which, in addition to barring plaintiff from attending his graduation, “order[ed] him to delete the alleged offensive message from his [T]witter account[.]” …
Castro sued on various theories, but the one that survived the motion to dismiss (and the one I’m interested in here) was the claim that the school’s actions violated his free speech rights; and, surprisingly, the defendants’ entire argument as to free speech was,
In his first cause of action, Plaintiff alleges that Defendants violated Plaintiff’s right to Freedom of Speech under the First Amendment of the United States Constitution because Defendants disciplined plaintiff for using language that is almost universally considered to be profane in nature. Although the First Amendment of the United States Constitution guarantees broad speech liberties to persons residing within the United States, it is not without limit. Of note, certain speech activities of pupils at public schools may be limited. The California Education Code § 48907(a) states that “Pupils of the public schools, including charter schools, shall have the right to exercise freedom of speech and of the press including, but not limited to, the use of bulletin boards, the distribution of printed materials or petitions, the wearing of buttons, badges, and other insignia, and the right of expression in official publications, whether or not the publications or other means of expression are supported financially by the school or by use of school facilities, except that expression shall be prohibited which is obscene, libelous, or slanderous.” (Emphasis added.)
In this case, Plaintiff used the word “nigga” and “nigger” which was seen by someone who took offense to the use of Plaintiff s choice of words. So much so, that this (unidentified) person reported Plaintiff s speech activities to Defendants. As noted in California Education Code § 48907(a), pupils of California schools do not have the right to expression which is obscene, libelous, or slanderous. As the words “nigga” and “nigger” are universally considered obscene, Plaintiff does not have Constitutional protection for this expression. Because Plaintiff does not have any First Amendment protection for said obscene language, his First Amendment Right related to this particular expression cannot be violated.
But, as the court points out, this reflects a misunderstanding of what “obscene” means in First Amendment law.
Defendants argue that plaintiff’s free speech claims must fail because the terms “nigga” and “nigger” are obscene and therefore not protected speech. It is true that courts “have long held that obscene speech—sexually explicit material that violates fundamental notions of decency—is not protected by the First Amendment.” However, as plaintiff points out, the terms “nigga” and “nigger,” while offensive to many, are facially not sexually explicit and, thus, cannot be considered obscene under the framework set forth by the U.S. Supreme Court. Thus, defendants’ motion to dismiss on the basis that plaintiff’s tweets are obscene speech not protected by the First Amendment will be denied.
(The California Legislature could define “obscene” differently in in its statute if it wanted, but there’s no indication that it aimed to use a different definition—and in any event, the plaintiff’s claim is that the school’s actions violate the First Amendment, not the state statute.)
I think that the school’s actions (if plaintiff’s factual account is correct) did violate the First Amendment, and couldn’t be upheld on any theory. It’s true that Castro wasn’t expelled from school, or otherwise shortchanged as to his academic activities; but being denied the right to participate in an important public school ceremony—a right that all your classmates have—because of the exercise of one’s free speech rights would itself violate the First Amendment. (The logic of Lee v. Weisman, the graduation prayer case, strongly supports that conclusion, though I think the result would be the same even had the dissent prevailed there.) But in any event, the “obscenity” theory is a nonstarter.
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Americans are probably accustomed by now to President Donald Trump lashing out against Federal Reserve Chairman Jerome Powell on Twitter. In one recent tweet, Trump asked his followers which man is America’s “bigger enemy”: Powell, or Chinese President Xi Jinping. In another tweet, Trump wrote that “China is not our problem….Our problem is with the Fed” and called Powell “clueless.”
The Fed’s biggest crime, according to Trump, is that Americans would be richer and the economy would grow faster if only Powell would cut interest rates by a full percentage point. After months of resistance, Federal Reserve officials in September announced a reduction of interest rates by a quarter of a point. That wasn’t enough for Trump, who now demands that “The Federal Reserve should get our interest rates down to zero, or less” in response to the European Central Bank cutting its rates.
Following these repeated groundless attacks, libertarians and free market conservatives have found themselves jumping to the institution’s defense. But when it comes to bad economic thinking, there’s plenty of blame to go around.
Take Congress’ 1977 amendment to the Federal Reserve Act, which gives the Fed its dual mandate to achieve both price stability and maximum sustainable employment. The first part gives the Fed control of the money supply with the goal of containing inflation and creating stability in the financial system. By most accounts, the body has done a poor job of it. Research suggests this failure has played a role in producing most of the country’s severe banking crises, including those in the 1920s, the 1930s, the 1980s, and the 2000s.
In the Fed’s defense, the goal itself is ludicrous. Independent or not, the agency has no more ability to determine the correct supply of money than would an agency set up to determine the correct amount of bread or steel. Determining the right supply of money should be left—as it is with other goods—to competitive markets. As F.A. Hayek argued, and as George Mason University economist Larry White and the Cato Institute’s George Selgin have shown, the knowledge necessary to determine the appropriate supply of anything, including money, is discovered and revealed only through the competitive market process.
Then there’s the Fed’s second mandate of boosting employment. This, of course, reflects most politicians’ belief that it is the role of the government to create, control, and maximize the number of jobs. Again, the expectation is unrealistic.
The Fed has long relied on the now academically debunked idea that there is a negative relationship between inflation and unemployment (the so-called “Phillips curve”). Yet the agency’s own experience belies the notion. Since the 2008 financial crisis, its balance sheet has ballooned from $1 trillion to $4 trillion as it pursued policies of quantitative easing and super-low interest rates. At the same time, it pursued “tightened” money by effectively paying banks not to lend. The result of these contradictory policies was to prolong the recession.
Quantitative easing often leads to higher inflation, making the lives of retirees and others who live on fixed incomes harder by reducing their spending power. Luckily, there has been very little inflation this time around, with the Fed undershooting its 2 percent target. (Turns out social engineering is harder than it seems!) What these policies have done is reduce the return seniors earn from their savings (because of low interest rates) and encourage higher risk taking to compensate for the loss. They’ve also discouraged saving and investment, leading to reduced capital expenditures and slowing the growth of labor productivity and real output after the recession. Experts seem unsure of the Fed’s impact on growth since 2017.
The second part of the dual mandate also encourages presidents to think that the Fed’s job is to bail them out when the economy is taking a hit—say, because of destructive trade policies. In a 2014 piece for the Cato Journal, the late Fed historian Allan Meltzer noted that this politicization of the Fed has led it to pursue policies that go against the objective of price stabilization and financial stability.
Milton Friedman once said that “money is much too serious a matter to be left to the central bankers.” He was right. But given that we have a Fed, we should at least work to ensure it’s not being swayed by political interests.
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Americans are probably accustomed by now to President Donald Trump lashing out against Federal Reserve Chairman Jerome Powell on Twitter. In one recent tweet, Trump asked his followers which man is America’s “bigger enemy”: Powell, or Chinese President Xi Jinping. In another tweet, Trump wrote that “China is not our problem….Our problem is with the Fed” and called Powell “clueless.”
The Fed’s biggest crime, according to Trump, is that Americans would be richer and the economy would grow faster if only Powell would cut interest rates by a full percentage point. After months of resistance, Federal Reserve officials in September announced a reduction of interest rates by a quarter of a point. That wasn’t enough for Trump, who now demands that “The Federal Reserve should get our interest rates down to zero, or less” in response to the European Central Bank cutting its rates.
Following these repeated groundless attacks, libertarians and free market conservatives have found themselves jumping to the institution’s defense. But when it comes to bad economic thinking, there’s plenty of blame to go around.
Take Congress’ 1977 amendment to the Federal Reserve Act, which gives the Fed its dual mandate to achieve both price stability and maximum sustainable employment. The first part gives the Fed control of the money supply with the goal of containing inflation and creating stability in the financial system. By most accounts, the body has done a poor job of it. Research suggests this failure has played a role in producing most of the country’s severe banking crises, including those in the 1920s, the 1930s, the 1980s, and the 2000s.
In the Fed’s defense, the goal itself is ludicrous. Independent or not, the agency has no more ability to determine the correct supply of money than would an agency set up to determine the correct amount of bread or steel. Determining the right supply of money should be left—as it is with other goods—to competitive markets. As F.A. Hayek argued, and as George Mason University economist Larry White and the Cato Institute’s George Selgin have shown, the knowledge necessary to determine the appropriate supply of anything, including money, is discovered and revealed only through the competitive market process.
Then there’s the Fed’s second mandate of boosting employment. This, of course, reflects most politicians’ belief that it is the role of the government to create, control, and maximize the number of jobs. Again, the expectation is unrealistic.
The Fed has long relied on the now academically debunked idea that there is a negative relationship between inflation and unemployment (the so-called “Phillips curve”). Yet the agency’s own experience belies the notion. Since the 2008 financial crisis, its balance sheet has ballooned from $1 trillion to $4 trillion as it pursued policies of quantitative easing and super-low interest rates. At the same time, it pursued “tightened” money by effectively paying banks not to lend. The result of these contradictory policies was to prolong the recession.
Quantitative easing often leads to higher inflation, making the lives of retirees and others who live on fixed incomes harder by reducing their spending power. Luckily, there has been very little inflation this time around, with the Fed undershooting its 2 percent target. (Turns out social engineering is harder than it seems!) What these policies have done is reduce the return seniors earn from their savings (because of low interest rates) and encourage higher risk taking to compensate for the loss. They’ve also discouraged saving and investment, leading to reduced capital expenditures and slowing the growth of labor productivity and real output after the recession. Experts seem unsure of the Fed’s impact on growth since 2017.
The second part of the dual mandate also encourages presidents to think that the Fed’s job is to bail them out when the economy is taking a hit—say, because of destructive trade policies. In a 2014 piece for the Cato Journal, the late Fed historian Allan Meltzer noted that this politicization of the Fed has led it to pursue policies that go against the objective of price stabilization and financial stability.
Milton Friedman once said that “money is much too serious a matter to be left to the central bankers.” He was right. But given that we have a Fed, we should at least work to ensure it’s not being swayed by political interests.
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