The Flinchum File
Thoughtful Economic Analysis and Existential Opinions

More Fish In The Sea

11/20/2020

The Senate should not approve the nomination of Dr. Judy Shelton to the Board of Governors of the Federal Reserve System.

She has frequently expressed interest in returning to the gold standard.  If gold is pegged at $35/oz ,for example, our total money supply is a direct function of how much gold we have.  We can quibble about a return to the gold standard and the neutering of the Fed, but we cannot simply “put the genie back in the bottle.”  It makes us too vulnerable to the rest of the world.  When we were on the gold standard, there was a limit on how much and how quickly we could increase the money supply.  The nostalgic pull of the old Fed with its hands tied by the gold standard is tempting and pleasant but no longer possible nor helpful.  The almost-heroic actions of the Fed during the Great Recession of 2008/9, as well as this year, would have been impossible.

Even more worrisome, some believe she is more focused on politics than economics.  She opposed lower interest rates during the Obama years, arguing for higher rates as unemployment fell, echoing the discredited Phillips Curve, but changed her mind during the Trump years.  That sure smells of partisanship to me.

There are so many better choices for the Board, and I trust the President will find one of them.

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