Welcome to part three of my three part series on our presidential candidates’ stances on economic issues. In case you missed it, here’s the first on taxation and the second on financial reform. Again, we lost some candidates since last I posted. Chris Christie and Carly Fiorina will be sorely missed, as well as Jim Gilmore, I guess.
For this final week, the issue is the Fed! First, a woefully short description of the Federal Reserve (aka the Fed). They deal with monetary policy, playing some role in deciding the value of the dollar by controlling the federal funds rate. Banks and whatnot look at this rate and say “gee, if I can loan from the government at this rate, what interest rate should I charge my customers?” and usually pick something a few percentage points higher so they make profit. So when the Fed lowers this rate, banks give loans at lower rates, and normal people get access to more credit and likely make bigger purchases. The Fed lowered their rate to virtually zero percent during the Great Recession to help the flailing housing market and economy… and kept it at zero percent for over seven years… up until last December, when they finally raised it to a range between 0.25% and 0.50%, since they finally saw enough evidence of an improving economy.
Doing this created enormous hooplas from many of the presidential candidates, and nearly all love blaming the Fed for something, generally for making the Recession worse or pandering to Wall Street. Let’s go into that.
I haven’t been around for too many presidential elections, so I can’t say with certainty that the candidates in previous rounds believed the Fed knew best how to do monetary policy, but I know for certainty that nearly all current candidates think the Fed sucks at knowing what to do.
Bernie Sanders thinks the Fed has been “hijacked by the very bankers it regulates,” and thus wants to implement regulations to isolate the Federal Reserve from banker influences, like kicking out former bank executives. He thinks the Fed’s decision to raise the interest rate was motivated by bankers and, as a rule, thinks the Fed shouldn’t raise rates unless unemployment is below 4%.
In a strange case of like-mindedness, Bernie Sanders, Marco Rubio, Rand Paul, and Ted Cruz all supported a bill to “Audit the Fed,” back in January, which failed to pass the Senate (Cruz didn’t show up to vote, what a good guy). This bill would have required the Government Accountability Office to perform a full and independent audit of the Federal Reserve each year.
Basically, they all wanted it passed so that the Fed’s tactics, such as for emergency lending, could be evaluated by democratically elected leaders, and thus the Fed could be held more responsible. They had different reasons for liking it, of course, with Sanders wanting to catch big bank manipulation in the act, while the republicans just want more Congressional control over the economy in general.
I frankly find the idea of letting Congress (and politics in general) get more sway in monetary policy o be scary, because macroeconomics is, if anything, complicated. Thus, I’d rather have “philosopher kings” carefully considering every action than people good at winning votes driving our economy.
Marco Rubio thinks the best thing the Fed could do is create official monetary rules. If this happens to the economy, do this, every time. Now, I don’t have a major in economics (yet), but that sounds like a dangerous oversimplification. Rubio asserts it would add stability to the economy while I present a counter-proposal to replace all Congressmen with robots to add stability to the economy.
Ted Cruz likes Rubio’s ideas, but goes deeper, saying that the U.S. should return to the gold standard for reasons of stability. A good topic for another article would be why that’s such a bad idea, so, in the meantime, read this one.
Surprisingly, Donald Trump sounds like he knows what he’s talking about, probably because he does business on a global scale. I disagree with his putting inflation concerns above all else, but that’s basically what demarcates liberal and conservative monetary policy, and I’m way liberal.
Finally, I honestly could find nothing on Hillary Clinton, probably because she’s fine with the Fed’s current actions and understands that the President gets to appoint those on the Federal Reserve anyway if she begins to dislike them.