I haven’t been blogging as much as I wanted to be. My problem with my writing is I’m attracted to “high concept” pieces that take a lot of work but often don’t have the time to finish them “in one go”. Then, once I stop working on them, it becomes difficult to return to them. Thus, starting today, I’m going to make sure I post once a week on what I’m reading. I’m always reading papers, articles and dissertations and I go through much more material than I ever comment on publicly.
Because of the excellent coverage at MarketWatch - featuring quotes from my partner-in-crime Rohan Grey and the great economist at UMKC Scott Fullwiler- I made myself watch John Oliver’s coverage of third parties. It was as boring and annoying as I thought it was going to be when i stopped watching the video this morning a few minutes in. Okay I lied- I slogged through the automatic youtube transcripts because I couldn’t bear to hear any more marginally informed smarm from him. There are a lot of ways to criticize what he had to say, but to me the important thing was his drive by defense of central bank independence:
...only the Federal Reserve does and it does not take marching orders from the White House because that would be extremely dangerous you don't want to give presidents the power to just create new money whenever they want
He goes on to illustrate how “dangerous” it is using a frivolous example of a stunt presidential candidate “creating” money for his own use. The problem with this should be obvious- we don’t have to choose between the Federal Reserve having complete autonomy and a president unilaterally spending money on whatever he or she desires. That’s why there’s this centuries long thing called administrative law that deals with how authority is delegated to government agencies and the extent to which it is delegated. The idea that the delegation of some spending authority to administrative agencies or the presidency is crazy and allows them to go hog wild but the ability to buy and sell unlimited amounts of a variety of financial assets and change interest rates- to 20%+ ,as actually happened under Volcker, isn’t enormous power is absurd. This kind of thinking shows either an ignorance of monetary policy or a complete and utter servility to the status quo.
The Committee for Economic Development- a business-run center right think tank that is about as mainstream as you can get- even funded research in the late 1950s “... that openly contemplated varying even tax rates within ranges set by Executive decree, bringing it much closer to the progressive Keynesian ideas of the late forties” (Costantini 2015). Giving the president the authority to, say, spend up to 100 billion dollars if he or she has evidence that there is a recession is some discretion but not unlimited discretion. You could limit the types of spending the President could do to particular categories such as “necessary infrastructure maintenance” or community services, higher unemployment insurance etc and then review her or his spending choices over the following year. These are perfectly reasonable ways of delegating fiscal policy powers and not "very dangerous".
I’ll go further- there is no inherent reason why congress couldn't disallow discretionary changes to interest rates by the Federal Reserve and rely on some delegation of fiscal policy authority as the government's primary discretionary stabilization policy. For example, like the CED research above suggests, you could give the IRS authority to change certain marginal tax rates within particular set ranges. In fact, I think this would be much, much less discretionary authority than the Federal Reserve has now. In other words, just because creating fiscal authorities out of administrative agencies as an alternative to Federal Reserve independence isn’t a mainstream policy idea now doesn’t mean it is inherently crazy. I’m all for making green party analysis more technically correct- but it is obvious to everyone that most people who criticize Jill Stein aren’t interested in that. Oliver himself hit her on this point in the context of a general broadside against third party candidates. In other words, if you’re nitpicking on technicalities to justify your own milquetoast liberalism- at the very least be right.
Which brings us to the issue that so much of what he says here is just wrong and not just misleading or disingenuous. He says it would be crazy for the President to be able to get the Fed to buy and forgive the debt. However, he doesn’t discuss at all that the Department of Education may be able to directly forgive debt- or declare a moratorium on payments- and the President could tell them to do so. This isn’t the place to get into the specifics or technicalities of administrative law but the fact that this never seems to occur to him- or that this would be functionally the same thing as a Fed purchase and forgiveness- reveals basic ignorance of the subject, which is frustrating coming from someone posturing as “more knowledgeable-than-thou”. Sometimes being a left wing policy wonk is frustrating because you have to endure all these “serious” criticisms of left wing politicians that are chock full of this kind of nonsense.
Speaking of nonsense, this all skips over the fact that the example he proffers is particularly absurd because the Federal Reserve already does discretionary fiscal policy and isn’t budgeted by congress (Conti-Brown 2015)! No one told the Federal Reserve to run a full employment program for economists-yet it basically does. This year the Federal Reserve Board alone- meaning not including the budgets of the twelve regional Federal Reserve banks- is spending over $136 million dollars on “monetary policy” research and analysis. In 2009 alone a Federal Reserve spokeswoman told the Huffington post that the Federal Reserve overall was budgeted to spend $433 million dollars on research into “monetary and economic policy”.
Even Milton Friedman, in an interview to Bloomberg July 7th, 1993, was reported as saying:
“the Fed’s relatively enhanced standing among the public has been aided ‘by the fact the Fed has always paid a great deal of attention to soothing the people in the media and buying up its most likely critics' Recognizing that the Fed employs ‘probably half of the monetary economists in the U.S. and has visiting appointments for two-thirds of the rest’ he [Friedman] saw few among the academic community who were prepared to criticize the Fed policy.”
I promise you that Federal Reserve spending on economists and economic research is a frivolous expense with a bigger negative effect on how the economy works than a 1000 tiger themed orgies - and hell it probably costs a lot more money too. That isn’t to besmirch the research- a lot of it is quite good in my experience. However, the fact that it is doled out autocratically by the Fed and without congressional review means these economists are under undue influence. Not to mention it completely distorts government research priorities. If all the research money the government spends is put together, I suspect that monetary policy is very over represented given the priorities of most americans. How much necessary research spending was cut and never refunded after the sequester?
Yet very few people are aware of this, let alone debating it. It’s true that if the Federal Reserve just outright started spending tens of billions of dollars congress would notice and reign it in- but that’s precisely the point. If all that’s constraining “frivolous” discretionary spending from the Federal Reserve is Congressional sanction- presumably this is the same thing could constrain the President. Critics of discretionary fiscal authority vested in an administrative agency besides the Federal Reserve and/or an agency under the control of the President need to explain how this is at all consistent. If they don’t think it is and want the Federal Reserve’s operational budget to be congressionally appropriated, they should spend their time on that much more important issue rather than taking pot shots at Jill Stein or third party candidates. Further, they need to explain why unlimited discretionary policy over setting interest rates is a less important power than moderate fiscal policy discretion vested in another independent agency or the President/a dependent agency. As of now, the only method i see here is hippie punching.
P. Conti-Brown, 2015, the Institutions of Federal Reserve Independence, 32 Yale J. on Reg., p. 273, available at http://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1412&context=yjreg
Costantini, O. (2015). The cyclically adjusted budget: history and exegesis of a fateful estimate. Institute for New Economic Thinking Working Paper Series, (24). available at https://www.ineteconomics.org/uploads/papers/WP24-Costantini.pdf