Following President Trump’s announcement that he would appoint Stephen Moore to the Federal Reserve’s Board of Governors last week, economists on both the Left and Right have voiced their disapproval. They say Moore is unqualified for the position.
Moore’s supporters — a handful of policy writers on the Right — have pushed back, describing the would-be central banker as a more-than-qualified outsider poised to challenge the established Fed bureaucracy. John Fund compares the opposition Moore has received from economists to medieval guilds, which “set high hurdles for new entrants, or blocked them entirely, in order to limit competition.” Fund is quick to dismiss claims that Moore is not a trained academic economist as reflecting little more than than the fact that Moore lacks a Ph.D. (Moore earned an M.A. in economics from my alma mater, George Mason University.)
Does the lack of a Ph.D. in economics make Moore unqualified for the Board of Governors? Credentials, while desirable, are no guarantee of ability. As Amity Shlaes points out, “a most credentialed guilded central banker (NBER head, mentor to Friedman), the pipe-puffing Arthur Burns, gave us our worst inflation.”
Likewise, the lack of credentials need not imply inability. Alan Greenspan only had an M.A. when he was appointed chairman of Gerald Ford’s Council of Economic Advisors. (He earned his Ph.D. in 1977, at the age of 51 — a decade before taking the helm at the Fed.) In other words, Shlaes is entirely correct when she writes that Moore’s lack of a Ph.D. in economics “is a weak argument against him.”
The problem with Moore is not that he doesn’t have a Ph.D. The problem is that he is less like Alan Greenspan, and more like Arthur Burns.
Greenspan earned a Ph.D. in economics relatively late in life. But, prior to that, he had a long career in macroeconomics and finance. He worked as an analyst at The Conference Board (then known as the National Industrial Conference Board), which (among other things) measures consumer confidence and tracks key macroeconomic indicators, from 1948 to 1953. Then, from 1955 to 1987, he was chairman and president of Townsend-Greenspan & Co., a very successful economics consulting firm based in New York City. So, while he lacked a Ph.D. for much of his career, he had the experience required to do a good job.
Stephen Moore, in contrast, has not had a long career in macroeconomics or finance. He is a political pundit and policy advisor. And his punditry and policy advice has had little to do with monetary policy or financial markets. Rather, his work has dealt primarily with budgetary policy — that is, how the government should set tax rates and spending levels to promote economic growth.
The Fed does not conduct budgetary policy. It conducts monetary policy and regulates financial markets. Its governors — whether they are Ph.D. economists or not — should be experts in monetary policy or financial-markets regulation.
If President Trump wants to appoint Stephen Moore to a high-level position, he should appoint him to the Office of Management and Budget, the Department of the Treasury, the National Economic Council, or the Council of Economic Advisors, where Moore’s subject-area expertise would be relevant. Appointing Moore to the Fed is like hiring a plumber to fix your cable — except the stakes are much higher.
Unlike Greenspan, Moore lacks the relevant experience. But that is only part of the problem. Like Burns, Moore would make monetary policy decisions with an eye toward helping reelect the incumbent president.
As Burton Abrams makes clear, President Nixon pressured Arthur Burns to loosen monetary policy in the run-up to the 1972 election. Nixon reasoned that a monetary expansion would boost output and lower unemployment, improving his electoral odds in the process. That the changes in output and unemployment would be short-lived and inflation would follow seemed to be of little concern.
Rather than resisting the pressure from Nixon, Burns obliged. Nixon was reelected in a landslide. The economy entered a recession the following year. Inflation, which stood at 3.43 percent in November 1972, increased to 7.18 percent in November 1973 and 11.50 percent in November 1974.
There seems to be little doubt that Moore would push for monetary policy that improves the electoral odds of President Trump. Moore served as an advisor to Trump’s 2016 election campaign and advised the administration on tax policy following the election. More tellingly, his stated monetary policy positions are difficult to square with any other view.
During the 2007–9 recession and the lowflation years that followed, Moore advised against expansionary monetary policy. More recently, with the Fed finally hitting its 2 percent inflation target, Moore has come out in favor of expansionary monetary policy. Indeed, he has even called for the president to sack current Fed Chair Jerome Powell, on the grounds that “he's wrecking our economy” by keeping monetary policy tight.
What has prompted such a reversal?
The economic circumstances have changed, to be sure. But those changes would explain why one would advocate expansionary monetary policy then but not now. Moore has gone in the opposite direction.
The relevant difference, therefore, would seem to be the party in power. When Barack Obama sat in the White House, Moore preferred tight monetary policy — the kind that would reduce the electoral odds of the incumbent party. Now that Donald Trump occupies the post, Moore prefers loose monetary policy — the kind that would improve the electoral odds of the incumbent party. Simply put: Stephen Moore seems more concerned with partisan politics than macroeconomic stability.
Reasonable people can disagree about the merits of a particular appointee to the Federal Reserve’s Board of Governors. But there is a standard, below which they should agree that one is unqualified for the position. An appointee need not hold a Ph.D. in economics, but he or she should be an expert in monetary policy or financial-markets regulation and should not be beholden to the administration. Moore falls short of this standard in both regards.