Trump seeks to end independent Fed

Gordon L. Weil

Remember the Great Recession of 2008? 

Thanks to prosperity since then, memory may have faded.  The steady growth in the American economy is largely the result of two-fisted government action by the president and the Federal Reserve.  They each used different tools.

Increased spending on public projects can help turn the economy around.  It pumps money into directly creating jobs, which produce even more jobs as the new income ripples through the country.

Soon after taking office, President Obama succeeded in getting Congress to adopt an economic stimulus that reached $831 billion.  Tax cuts were a big part of the package, along with building roads and other public facilities.  Some went to social benefit programs.  New federal debt paid the bill.

A GOP Congress denied Obama any more stimulus spending, but later it was willing to add to the public debt by adopting more tax cuts.  President Trump signed off on them, and the recovery continued.

The stimulus alone would not have brought the strong recovery.  Much of the sustained work was handled by the Federal Reserve.  On its own, it lowered interest rates, making borrowing easier for new homes and business expansion.

The Fed also stepped up lending to banks, so they could more easily offer mortgages and money for economic development.  By lowering interest rates and making more debt available, it used its powers to aid the economy.

Created in 1913, the Fed has mandates to fight inflation, when prices and interest rates rise too quickly, and to promote job creation.  Its moves affect all other banks and it serves as the federal government's bank, making it the central bank.  Other countries also have central banks.

The U.S. central bank is meant to operate outside of political control.  Its board members are appointed for 14 year terms.  The long terms are intended to insulate the Board, which receives no taxpayer funding, keeping it independent of the politics of the day.

The president and Congress may want the Fed to promote easy money, allowing them to take credit when running for reelection.  They are likely to be less concerned about long-term effects, whatever the Fed's responsibility.

When he was running for reelection in 1972, President Nixon induced the Fed chair to lower interest rates.  That produced a short-term push to the economy but led to huge inflation that hit under President Carter.

Now having slashed interest rates and bought enormous amounts of debt to beat the Great Recession, the Fed has few tools left to combat another downturn.  You cannot cut rates to stimulate the economy when they are already low. 

So the Fed has begun trying to rearm itself by gradually raising rates and reducing the amount of bank debt it holds.  By returning to normal levels, it will later be able to make cuts to help recovery in case of another downturn.  It has been going slowly, because there is little inflation.

Trump has promised great economic growth.  While he can take some of the credit for the sustained recovery, he wants levels of growth that would be unusually high.  This year, he is not achieving his goals, which probably would have eluded any president or policy.

He blames the failure to reach high growth rates on the Fed, including Jerome Powell, his own appointee as chair.  Trump believes that raising rates, even slowly and slightly, hampers the achievement of his forecast growth.  It's obvious he dislikes the Fed's independent monetary policy.

He scorns Powell, admitting he is "stuck" with the Fed chief, but keeps up his pressure.  Powell resists resigning.  But he has led the Fed to back off plans for more small rate boosts.

Trump has picked candidates for two open slots on the Board.  Stephen Moore is a political commentator with no academic or business background to help him with the complexities of monetary policy.  Herman Cain is a businessman who shows no understanding of the Fed.  Both have made misstatements about the Fed.

Trump's economics are misguided, designed only to win him an election, and his appointees, both Trump loyalists, would vote to decrease rates.  Nobody would worry about post-election inflation. 

The Fed committee that makes policy has 12 members.  So these appointees could not themselves change interest rates.  But they could politicize the Fed.

Congress created the Fed as an independent body.  It was meant to keep the economy on a steady course, not subject to political swings.

Will the Republican Senate refuse to confirm political appointees or appease Trump in hopes he will lead the GOP to electoral victory?

GOP deploys political "bluff" on Green New Deal

Gordon L. Weil

The country has been treated to a classic case of political theater, and few even knew about it.

People missed the cynical drama staged by Senate Republican Majority Leader Mitch McConnell mainly because much of the media spread what amounted to "fake" news.

The story began in January when some newly elected House Democrats launched a proposal dubbed "the Green New Deal."  The "New Deal" was meant to echo the broad social legislation enacted to combat the Great Depression in the 1930s.  The new version would bring sweeping economic and environmental action.

The proposals were ambitious and idealistic, reflecting deep concern about the deterioration of the environment and the income gap.  Opponents immediately ridiculed them, claiming they would outlaw everything from airplanes to cows' farts.

While it was obvious the proposals were a set of lofty objectives, backed by Senate Democrats running for president, they lacked detail.  They proposed no funding and aimed for success in ten years, which was clearly impossible.  Critics would claim they were impractical or would harm the economy.

No member of Congress expected that the Green New Deal could be adopted before the 2020 elections.  Some Democrats hoped to see if it could get the party on record in support of its goals.  Many others were wary of endorsing extreme and controversial proposals. 

Republicans relished the prospect of a split among Democrats and the possibility of being able to box the Democrats into a politically vulnerable endorsement of the proposal.  To them, the Green New Deal was not a challenge, but an opportunity.

McConnell himself proposed the Green New Deal bill in the Senate.  Republicans staged a symbolic floor debate to exaggerate and lampoon it.  The GOP leader had made sure that there would be no committee hearings on the bill and no possibility for other senators to amend it.

He then scheduled his bill for what has been called a "bluff vote."  Though the Republicans had proposed the bill, they really opposed it and would seek to kill it.  That was their bluff.  They apparently hoped that some Democrats, to please the party's most liberal wing, would err and vote for the proposal, causing an internal party split.

A couple of weeks ago, the bill was brought before the Senate.  Under today's practices, the Senate would first have to vote to end debate before the bill itself would be considered.  If the GOP blocked ending debate, the bill would theoretically remain alive.  In fact, it would be buried. 

The GOP could use this stealthy move to vote against their own bill without going on record in opposition to its lofty goals. 

The Democrats countered by deciding simply to vote "present" when their names were called.  In that way, they could avoid falling for the bluff.  With no favorable votes and not enough votes to end debate, the bill would effectively be permanently shelved.

Everybody knew the script.  The vote on cutting off debate followed predictable lines.  All Republicans voted against ending debate and Democrats, except for four, voted "present."

Three of the four were Democrats elected in normally Republican states.  Their votes, throw-aways because they did not affect the outcome, might help them burnish their credentials with GOP voters back home.

The fourth senator was Maine's Angus King.  He is an independent member of the Senate but is aligned with the Democrats.  He objected to the Green New Deal as being impractical, as did the Republicans and some Democrats, but he also objected to McConnell's bluff strategy.  Still, as an independent, he could vote this time with the GOP.

Then, the media coverage hid the whole unseemly ploy.  Virtually all news reports said the Senate had voted down the Green New Deal.  It surely would have done so if there had been a real vote, but the media downplayed or ignored that, above all, this was a "bluff vote" designed to split the Democrats.

No news reports noted the lack of the normal legislative consideration that would happen if the bill was taken seriously.  The media allowed the GOP to get away with its bit of theater.  It made no effort to explain what was in the bill or the reasoning behind it. 

In school, students may be taught how laws are made in the federal government.  The formal system described in the schoolroom is gone, replaced by the kind of tactics used on the Green New Deal.  Can you find that fact in the evening news?

When government doesn't work, people may be angry.  But they often don't know why.

Mueller findings, voter worries could produce Trump win

Gordon L. Weil

Whatever the polls say, Donald Trump could be re-elected. 

Both he and the Democrats have focused great attention on the Mueller report.  By finding that the Trump campaign did not collude with Russian meddlers, it may end up absolving Trump of many other charges or complaints.  Some voters are sure to see it that way.

His chances for victory may rate better than his personal popularity, because he appeals to millions of Americans who worry about their meager savings and dislike changes taking place in the country.  Despite low unemployment, these people have not shared in the nation's prosperity.

Nobel Prize winning economist Joseph Stiglitz has reached sobering conclusions, finding "the U.S. has the highest level of economic inequality among developed countries.  It has the world's greatest per capita health expenditures yet the lowest life expectancy among comparable countries."

Even worse, the gap between average people and the most wealthy is huge.  Stiglitz notes that three Americans have as much wealth as the bottom 50 percent.  To be clear, that's three people, not three percent.  And the percentage of children earning more than their parents, a sign of economic progress, is tumbling.

American productivity is climbing.  But the benefits do not show up in the wages of production and nonsupervisory workers.  Investors and owners are picking up the gains.

Under the Republican tax cut, the breaks have mostly gone to the wealthy.  Middle-income taxpayers saw their withholding tax lowered before the 2018 elections, but their expected tax refunds shrink after those elections.

Still, some voters do not hold Trump responsible.  They believe their taxes can be reduced by cutting government spending.  Reduced regulation, which Trump is providing, costs less.  A tough trade policy slows imports, creating more jobs at home, though it may also cut exports.

The dominant political mantra remains "jobs, jobs, jobs."  It seems to matter little if the price of today's low unemployment is less environmental protection and lower quality health care. 

Trump promises recovery of the declining manufacturing economy.  He appeals to people who regret the growing influence of women and minorities.  He wants to build trade and immigration walls to protect the country.  "America First" means an increasingly isolated country, seeking to regain its past.

Even though demographic change is inevitable, some see it as having been sped up by allowing an "invasion" of immigrants, legal and illegal.  Trump's Wall is a powerful symbol of resistance to change.  The key word in "Make America Great Again" has been "Again."  Some people like what that implies.

Whether Trump utters untruths almost daily or focuses excessively on himself or treats others with disrespect matters far less to some voters than his policies of lower taxes, fewer imports, reduced immigration and less regulation.  His policies may be enough to get him re-elected, even by voters who don't like him.

Many Democrats believe that his faults, now widely recognized, will be enough to bring his defeat.  His popularity remains relatively low.  In short, they think Trump will defeat himself.  That's why there are so many candidates.  Win the primaries, they think, and you win the presidency.

Their view gets some support from the 2018 congressional elections.  Republicans lost control of the House and gained less than expected in the Senate, because of voters' negative view of Trump.  Will the Mueller report change opinions about him?

Some Democratic candidates believe voters are ready for a sharp, almost revolutionary, reversal.  They argue for an increased role for government to deal with climate change, public health care and education.  The necessary funds would come from an increase in taxes on the most wealthy.

These Democrats see the reaction to Trump giving them the opportunity to focus on increased government action, not leaving the country entirely to the private sector and competition.  They may remind voters of the sad story of leaving regulation of the crash-prone 737 Max 8 to Boeing, its manufacturer. 

The Democrats divide between moderates and self-styled democratic socialists.  They split between middle-of-the-road policies and an extreme shift away from Trump.  Will the Democrats remain divided, benefiting Trump, or will the primaries yield a unifying view of how much change their voters want?

Meanwhile, Trump and his loyal Republicans seem ready to stick with catering to public longing for the disappearing past.  The worries of middle class families could work to Trump's political advantage.

The 2020 election is as likely to be about the temper of the American people as about Trump's character.  It will really be about us and what we want.