A guest post by Benjamin Cole
Unlike former President Richard Nixon, President Obama has been asleep at the wheel on monetary policy, with terrible results.
Nixon was acutely aware of the Federal Reserve Board—he blamed a too-tight Fed, in part, for his loss in his 1960 presidential bid—and so Nixon was monetary expansionist, and actively sought a Fed board members to do his bidding. Nixon also browbeat his appointee Fed Chairman Arthur Burns to stimulate the economy in time for the 1972 elections, all on tape, btw.
Some Market Monetarists—such as Scott Sumner—have criticized Obama for his soporific attitude towards appointments to the seven-member Federal Reserve Board of Governors, who sit on the 12-member Federal Open Market Committee (FOMC), wherein the nation’s monetary policy is made.
I am more forgiving; Obama was an academic constitutional lawyer before entering politics, and has been advised by “serious economists” since entering the White House. The Larry Summers crowd told Obama that monetary policy “shot its wad” when rates reached zero.
But I hope Obama reads this.
Obama’s Last Big Shot
There is good news, and someone should wake up Obama and tell him: Not only are there two current vacancies on the Federal Board of Governors, but also the two implacable tight-money men of Richard Fisher, Dallas Fed President, and of Charles Plosser, Philadelphia Fed President, are hanging up their monetary nooses next year.
Dudes, we are talking swing votes on the FOMC. The secret: Obama can play a role.
So how to replace Fisher and Plosser with something better?
It looks tough. The abbreviated version is that regional Fed bank presidents are selected by the boards of the 12 regional banks (and who picks the boards? Oh, never mind).
Okay, so Obama is out of it, right? Wrong!
Here is the key: The reserve bank presidents also must be approved by the Fed’s Board of Governors—that is, the seven-member Fed Board of Governors in D.C. appointed by U.S. Presidents (subject to Senate approval).
Now, if Nixon were U.S. President, you would see intense interest on who sits on the Board of Governors, and also who becomes regional bank presidents (remember, the 12 regional Fed presidents have five votes on the 12-member FOMC).
Way back when, Nixon told his Treasury Secretary John Connally to “scour the hills” to find an easy money man for the board. I suspect a Nixon would be acutely aware of even the pending regional Fed bank presidential vacancies, and would get involved in the selection process.
Could some federal spending find its way to Dallas, if the right person is selected as regional Fed President? Could Philadelphia get a new airport?
And besides—the President, through the Board of Governors, has the nuclear bomb. They can reject whoever the Dallas or Philly regional boards propose. Obama should send the word down: No more tight-money fanatics and extremists.
First, of course, Obama would have to go to the mat to get two good appointments to the Board of Governors, to fill those two vacancies.
Obama would have to get tough, do some fighting, wheeling and dealing, to set up a Fed Board that demands common sense from regional bank presidents. Some things are worth fighting for, and Fed board seats is one of them.
Obama should seize his last chance, and pack the Fed board with governors who believe in economic prosperity. Yes, fixing monetary policy now would be too late to help his Presidency, but it would be a statesman-like move.
Oddly enough, Obama could do more good with these last four appointments to the FOMC than he accomplished in his entire Presidency.
Life is funny, when you think about it.