“No one doubts Congress’s power to create a vast and varied federal bureaucracy. But where, in all this, is the role for oversight by an elected President? The Constitution requires that a President chosen by the entire Nation oversee the execution of the laws.”
Free Enterprise Fund v. Public Co. Accounting Oversight Bd., 130 S.Ct. 3138 (2010)
Let him remember, by the way, that the unforgivable crime is soft hitting. Do not hit at all if it can be avoided; but never hit softly.
Theodore Roosevelt, 25th President of the United States
David Beckworth posted a fascinating piece today that makes a great historical analogy.
Last year Christina Romer argued that Fed chairman Ben Bernanke needed a Volcker moment. What she meant is that like Paul Volcker in the early 1980s, Bernanke needs to rise to the occasion and adopt a new monetary regime radical enough to solve the big economic problem of the day… Maybe it is time for us to admit that Bernanke will never have his Volcker moment. He has had many opportunities and whether because of groupthink at the Fed, political power of savers, or a failure by him to read Scott Sumner’s blog, Bernanke cannot seem to find his Volcker moment. It is not clear he ever will. So instead of hoping Bernanke has a Volcker moment, maybe we should be hoping for President Obama to have a FDR moment.
The Fed had allowed aggregate demand to collapse for three years when FDR responded. He signaled that he wanted the price level to return to its pre-crisis level (i.e. increased expectations of higher nominal spending) and acted upon it by having the Treasury Department devalue the gold content of the dollar. This dramatically increased the monetary base and spurred a sharp increase in aggregate demand.
So how could President Obama have his FDR moment? Like FDR, he should signal his intentions for higher level of nominal spending and follow through on it by having the Treasury Department take the reins of monetary policy from the Fed. President Obama could do this by announcing a NGDP level target that would be implemented by the Treasury Department creating large-denomination platinum coins that would be deposited at the Fed and used to fund checks to the public. The Treasury Department would keep making these coins until the the NGDP level target was hit. If NGDP went above the target the Treasury Department would issue bonds to withdraw the excess money.
This is very very good advice (I must admit that’s a very clever use of platinum coins) and he does have Bernanke’s number. Ben Bernanke seems like a genuinely decent man but he is, at heart, a college professor. Some men are born to lead armies and other men to write books about the battle. You can’t expect the war hero to be a gifted writer, nor the professor to lead men by command presence and neither to be an effective President (Teddy Roosevelt, of course, excepted on all counts).
There was no Volcker moment simply because unlike Tall Paul or the two Roosevelts, Bernanke lacks the nerve of a riverboat gambler. And that’s fine, he never ran for office or promised bold leadership. The bigger problem is that the President’s last real job was law professor, so he’s not temperamentally suited to follow Beckworth’s advice either.
In FDR’s time, the President actually had greater authority over the Federal Reserve (until the 1935 Humphrey’s Executor decision, the President had the power to both hire and fire Fed governors), but I doubt it makes a difference in our present difficulties. The economy is a mess and if the President were willing to lead, I don’t doubt the Fed board would cooperate.
Every football fan knows that the prevent defense only prevents you from winning. If Obama doesn’t step up and embrace his FDR moment this year, he’s simply handing Mitt Romney the opportunity to embrace HIS FDR moment next year.
(Mike Sankowski here. Steve Waldman has been talking about common ground among the MMT and MM crowds. I think “NGDP level target from President Obama supported by using a Trillion Dollar Coin” is a brilliant mashup! )