You Can’t Make the Fed Better by Hiring Different People

from The Daily Bell:

Trump’s Fed Can Start a Central Bank Revolution … President Donald Trump will select three members of the Federal Reserve board during his term in office, including a replacement chair for Janet Yellen when her appointment expires early next year. He should seize the chance to refresh the Fed with faces from the business community, adding executives to the roster of PhD economists who currently run monetary policy in most of the world. -Bloomberg

The Federal Reserve and its defenders are changing the subject. At one point Trump had talked about auditing the Fed and others had talked about using the audit to damage the Fed so badly that it would have to shut down.

But now the end result has shifted. The idea is not to shut it down but to make it better by hiring people from the business community instead of from academia.

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Appointing executives to the Fed who’ve had to take fiscal and monetary policy into account when making decisions on where and when to build new factories or make other capital expenditure decisions makes sense.

Torsten Slok, the chief international economist for Deutsche Bank AG, sent around a chart last week showing how the composition of the Fed has become increasingly focused on PhD economists:

It’s little wonder that in this populist age central bank independence is under attack. As Bloomberg News reported on Monday, the rise of populism is putting pressure on central banks as “institutions stuffed with unelected technocrats wielding the power to affect the economic fate of millions.”

The emphasis on hiring business people for the Fed comes at a very good time. The Fed is in a great deal of trouble and only will become  even more mired in difficulty,

We read somewhere that pre-Internet it was easy to confuse people about what the Fed did. But now with the Internet a click away, it is very easy. Everybody knows or seems to know.

The Fed basically fixes the volume and price of money. That’s indefensible. Price fixing is anti-market. It makes no sense to have an agency fixing the price of the US dollar.

But the Fed will fight to the bitter end to keep its anti-market privileges, which it pretends benefits the market.

There can be some changes of course. Perhaps the Fed has hired too many academics and not enough business people. That’s what the book “Fed UP” by Danielle DiMartino Booth maintains.

She believes if more business people are hired, the Fed will recover its former glory. How is this possible. The Fed was never glorious. It was always an entity that tried to fix prices for a small group of bankers.

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