Episode Details

No time for a regular post today, so here’s a video.

Transcript

When Donald Trump took us to war with Iran, he dismissed warnings from the experts, from the military, from the intelligence community, saying that this was a highly risky proposition. Now he wants to bring that same level of clarity and judgment to monetary policy, and we should all be very afraid.

Hi, Paul Krugman here. Today, I’m going to do a video rather than a proper post because I just have too much stuff going on. I’ve been too busy to actually do the charts and quantitative analysis that would be involved in actually writing a post about this stuff. I’m recording this on Wednesday afternoon.

The news to which I’m reacting is that in the midst of everything else that’s going on, Trump is doubling down on his attempt to turn the Federal Reserve into a personalized institution that will do what he wants, and never mind the fact that it’s set up to have substantial independence, never mind the fact that there’s a long tradition of respecting the Fed’s independence. Trump thinks that he should be, as George Bush would say, the decider on monetary policy.

This would be a bad thing even if Trump was somebody who generally had good judgment. Monetary policy, what the Fed does — control of short-term interest rates, control of the money supply— monetary policy is technical. Doing it right does require that you know quite a lot about what’s going on. It’s something that you really do want, technocrats at least having a strong role in the decision-making process. And in fact we generally leave it up to technocrats.

Part of the reason for doing that is it’s too easy. It doesn’t require legislation to change interest rates. It just requires a phone call to the open market desk in New York City. So it’s really easy for a president who wants to rev up the economy, wants to juice things up before an election or just plain has crackpot economic ideas, it’s just too easy for a president to do a lot of damage.

So we put layers of insulation. Members of the Federal Reserve Board are appointed for long terms. The whole setup is one that is designed to at least take some time. It doesn’t allow a madman in the Oval Office to muck with monetary policy.

It’s especially bad if the guy in the Oval Office is somebody like Trump, who is impulsive, very much short-term reward-centered, and, of course, doesn’t read, doesn’t study, doesn’t listen to experts. And we know that Trump has a bee in his bonnet, that interest rates should be drastically lower than they are now, which is simply not supported by any of the facts about what’s happening to the economy.

Inflation is running hotter than it should be. The Fed has a target of 2 percent inflation on the PCE price index. It’s actually running at around 3.

That’s not good conditions for a rate cut. The economy doesn’t need a rate cut, at least it doesn’t appear to right now. We’re not in a recession. So technocrats at the Federal Reserve will not actually deliver the rate cuts Trump wants unless he’s able to exert personal control.

Now, the way he’s been trying to do that is itself outrageous. His minions at the Justice Department have tried to force Lisa Cook off the Federal Reserve Board based on totally spurious charges about her mortgage applications long before she was at the Fed. And they’re trying to force Powell out over allegations of cost overruns in Federal Reserve construction projects. This is crazy stuff, and nobody takes it seriously. Nobody thinks those are genuine charges. This is all about trying to use the mechanisms of the Justice Department to intimidate monetary policy makers and turn them into instruments of the presidential will.

The presidential will here, aside from being utterly self-centered, is also deeply uninformed. If you read what Trump has had to say about monetary policy, it’s clear that he doesn’t think of