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Moore's economic analysis has no basis in empirical reality


IN December 2015, the right-wing commentator Stephen Moore, US President Donald Trump's pick to fill a vacancy on the US Federal Reserve Board of Governors, savagely attacked then-Fed Chair Janet Yellen and her predecessor, Ben Bernanke, for maintaining loose monetary policies in the years following the "Great Recession".

According to Mr Moore, who is not a professional economist, investors had "become hyper-dependent" on the Fed's "zero-interest-rate policy … just as an addict craves crack cocaine". This "money creation", he surmised, had yielded "nada" in terms of "helping juice the economy, creating jobs, or giving the American worker a pay raise".

Worse, the United States had already "tried this before - twice - and both times the story ended badly with a pop of the bubble … in 1999-2000 and ... in 2008-09". The lesson, he concluded, is that "micromanaging the economy through the lever of money creation at the grand fiefdom within the Fed doesn't work".

Or does it? Mr Moore himself is probably not the most reliable judge. On Dec 26, 2018, he savagely attacked Ms Yellen's successor, Jerome Powell, for raising interest rates to unwind the very approach that he had condemned three years earlier.

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"If you cut engine power too far on a jetliner," he warned, "it will stall and drop out of the sky." Mr Moore complained that after having "risen by 382 points on hopes that the Fed would listen to Trump and stop cutting power", the Dow Jones Industrial Average had "plunged by 895 points" on the news of another interest-rate hike. This, he concluded, was evidence that "the Fed's monetary policy has come unhinged".

Mr Moore called on Mr Powell to "do the honorable thing … and resign". But, failing that, he hoped that Mr Trump would simply fire the Fed chair. "The law says he can replace the Federal Reserve chairman for cause," he observed in an interview that same week. "Well, the cause is that he's wrecking our economy."

If Mr Moore's approach to legal reasoning seems deficient, one must wonder how he would approach monetary policymaking. Judging by his own statements, a three-month Treasury rate of 0.26 per cent driving a 10-year rate of 2.3 per cent was far too low in December 2015, whereas a three-month rate of 2.42 per cent driving a 10-year rate of 2.55 per cent is far too high today.

What should we make of this? A generous interpretation is that Mr Moore's view of the economy has not changed, and that he has consistently offered his analyses in good faith. In that case, he must genuinely believe that any deviation from a 10-year rate of around 2.4 per cent poses an unacceptable risk - either of creating addicts or of wrecking the economy.

Another generous interpretation is that Mr Moore has consistently offered his analyses in good faith, but has changed his view of the economy. If so, he must be very sorry for having misled people. And presumably, he would be willing to apologise personally to Mr Bernanke, Ms Yellen, and anyone who may have heeded his bad advice between 2010 and 2016.

Of course, a less generous interpretation is that Mr Moore has not changed his view of the economy, and was acting in bad faith during the years of the Obama administration. Or, less likely, he is acting in bad faith now, after having conducted himself in an honest manner up until 2016.

As it happens, none of these interpretations applies, because they are all predicated on the false assumption that Mr Moore actually has an informed perspective of the economy. To my mind, he does not.

True, he has consistently advocated low government spending and opposed progressive taxation. He might even support more open immigration policies, as one would expect from a self-proclaimed free-market conservative. Then again, his views may have changed since he started advising Mr Trump in 2016. After all, he already seems to have abandoned his previous commitment to free trade.

That comes as no surprise. Throughout his career as a partisan talking head, Mr Moore's economic analysis has never had any basis in empirical reality. To the contrary, he has repeatedly shown that he will say whatever needs to be said to please his political master.

Needless to say, Mr Moore is wholly unfit to serve in the office to which he is being nominated. He has absolutely no business overseeing US monetary policy. The same is true of any president who would appoint him and any senator who would vote to confirm him. PROJECT SYNDICATE

  • The writer, a former deputy assistant US Treasury secretary, is Professor of Economics at the University of California at Berkeley and a research associate at the National Bureau of Economic Research.

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