This doesn’t mean he’s part of the moderate GOP establishment, like Bush and Romney. But it does mean that there is considerable overlap in terms of supporting bad policy, as indicated by my last two columns.
Yesterday, I wrote about his protectionism leading to a weak job market.
The previous day, I wrote about his embrace of Bernie Sanders-style price controls.
Today, let’s look at another example of Trump-style statism. During his first term, I pointed out that he was in favor of easy-money policy at the Federal Reserve.
He’s now gone nuclear in his quest for loose monetary policy, using a very flimsy pretext to threaten Fed Chairman Jerome Powell with a criminal indictment (for details, see reports from Reuters, AP, and WSJ).
I was trying to think of a way to explain why Trump’s approach is wildly wrong. But then I saw a tweet from Prof. Justin Wolfers that perfectly captures my concerns.
And his example of Turkey is spot on, as I wrote back in 2023. If you give a populist control of monetary policy, it’s a sure-fire recipe for inflation.
In a column for National Review, Jeffrey Blehar warns that Trump is going down a very bad path. Here are some excerpts.
Trump wants lowered interest rates and “loose money”; Powell (as well as nearly every single economist in America, including the vast majority of conservative economists) feels otherwise after the runaway inflation of the Biden era. …Trump demands a political Band-Aid to cover up the self-inflicted wound; Powell serves the nation, and not Trump’s immediate political desires. …What the Trump administration is doing here is pure thuggery, lawfare of the most shameless and self-disgracing sort. What defense does MAGA wish to offer for Trump threatening to indict the chairman of the Fed on fake charges because he won’t cut interest rates like Trump demands? …It’s frightening to see a methodology shaping up in the Trump DOJ’s nakedly political indictments. This is now the second time they have moved against a disliked political figure by sifting through random Senate testimony to find something they can hang a flimsy indictment on. It is precisely the brand of injustice we all learned to revile from the Stalinist era: “Show me the man, and I will find you the crime.” …The cost of the politics of this era will be felt long after Trump is gone. I fear we will never get the poison fully out of our blood.
Since I’m a policy wonk, I want to make a broader point. As such, I’ve created this very simple spectrum to help illustrate different approaches to monetary policy.
On the right end, you have the libertarian fantasy of competitive currencies, known in the academic world as free banking. Then you have various rules-based systems (such as inflation-rate targeting and price-level targeting), with the gold standard being the most rigid.
On the left end of the spectrum, you find the most irresponsible approach, where politicians use the printing press to finance deficit spending. Zimbabwe and pre-Milei Argentina are examples.
The problem with Trump’s preferred approach is that the sugar high of easy money is only temporary. It is followed by negative effects, such as rising prices and/or asset bubbles.
When politicians get involved, it is always possible to go from bad to worse. And that’s what Trump wants, which puts me in the uncomfortable position of defending a bad Fed Chairman because the replacement surely would be worse.
P.S. I’ve analyzed two academic studies on populist economics (here and here), and both found that higher inflation is one of the negative effects.
