Defending Freedom is Good Governance

Freedom-lovers all around the world are hoping that tonight President Biden will reverse his previous floundering efforts in foreign policy and announce a substantial support package for the brave Ukrainians. Ukrainians, like their forbears in Hungary, Czechoslovakia, Poland and Romania before them, have revolted against Russian totalitarianism. Our President has the opportunity to show he is a President of whom freedom-loving Americans can be proud. He needs to stand up tall and place the full panoply of American capabilities at the disposal of those who are sacrificing their lives and fortunes by defending their country against Russian expansionism through military force. Moreover, he needs to do it tonight at the traditional State of the Union speech to both Houses of Congress.

His recent behavior doesn’t suggest that he will do that. But that is what he needs to do at a time when it counts! A strong statement backed up with immediate and substantial movement of military supplies and civilian goods to feed, clothe and heal the wounded is called for. The already-invaded economy of the Ukraine needs help now, not the promise of sanctions that may help, if at all, only after their emergency has passed.

American foreign policy, particularly regarding the twin threats from China and Russia, has looked weak and flailing. Under this President, real deterrence has not been in play. Deterrence begins with positive displays of meaningful action which our enemies need to worry about. This is not a time to cater to the prevalent view of “no more foreign wars.” The Ukrainians have demonstrated that they are willing to fight and die for their country. We must immediately supply them for their struggle. This illegal attempt to take over a free country by military force is exactly what we must resist with substantive actions. The Free World cannot afford any further delay by America in meaningful support for the Ukraine.

Totalitarian countries watch what we do, not what we say. They formulate their own strategies by estimating how we will respond. A flaccid response by the USA is an open invitation by Putin and Ji pin to-implement their own aggressive policies with military means now and in the future.

This is nothing new. Have we learned nothing from the history leading up to WWII? Have we no guidance from our struggles during the Cold War? Didn’t the confrontation with the
Khrushchev-led Soviet Union with Missiles in Cuba in 1962 teach us anything? A Putin-led Russia wishes to similarly assert its world presence by demonstrated military power coupled with a nuclear threat precisely because our leadership has been a blither of words lacking forceful actions. This is the time, Mr. President, to “walk the walk.” Americans of all political persuasions know this. Your prestige hangs on your actions, not your speech, and so does the prestige of our country. As Benjamin Franklin once said at that critical moment of the signing of our Declaration of Independence, “We must all hang together, or, most assuredly, we shall all hang separately.”

Mr. President: Don’t denigrate our traditions of defending freedom by talking brave but doing little. Now is not the time for the “summer soldier and the sunshine patriot.” Now is the time to be the Leader of free peoples everywhere and of those who yearn still to be Free.

The Whole World is Watching!

A TIME FOR SENATE GOVERNANCE: the Powell Re-nomination

Not by whim or chance did our Founding Founders create a tripartite division of governance even though they gave significant power to the Presidency. It is time for our senior legislative body to step up to that responsibility and reject the confirmation of the Chairman of the Federal Reserve to another 4-year term.  Why?  Because he and his Board of Governors of the Federal Reserve have failed to carry out their dual mandate.

Any thoughtful observation of the recent inflation data shows that inflation is neither transitory—as the current Chairman has previously asserted it would be over the  past year—nor is it anywhere close to the self-proclaimed 2% boundary that the Fed had so often stipulated for inflation governance in the past. It is well past the time that the Senate carried out its mandated  (Constitutional) task of “advise and consent.”

Failure to reject a Powell second term would be a feckless concession to Executive power and another long step down the path of faulted political governance. Sadly, but likely, we should anticipate another failure by this present Senate.

The only reason that key Senators in the confirmation process could possibly evoke is that a failure to confirm Powell now might produce an even less qualified and “woke” nominee!  The evidence of that likelihood are this President’s other nominees’ to other important financial positions. Specifically, Ms. Raskin’s pending nomination and strong doubts concerning the orientation of Ms. Lisa Cook’s nomination to the Fed’s Board of Governors.1

If the Senate confirms the Powell reappointment it will have failed to assert the responsibility given it by our Constitution. If it denies the reappointment, it will have to face the likelihood of a rudderless Board of Governors at least until the November elections when its voice can be important in telling this President that he must act prudently in finding a more adequate leader of the Fed. A rejection now could accelerate a more reasonable appointment process to begin earlier!

  1. Professor Harald Uhlig has recently posted a strong letter on that nomination in a recent Wall Street Journal opinion column. “The Fed doesn’t need a Censor,”
    The Wall Street Journal 2/13/2022. []

The Fed on Trial

The Powell Fed deserves Talleyrand’s opprobrium of the Bourbons: “learned nothing and forgot nothing.”

Some sixty- odd years since Friedman and Schwartz published their monumental tract on the monetary history, this Fed believed and populated its belief of transitory inflation after the greatest monetary expansion in US history. All this while Powell’s renomination for another 4 year term as Fed Chair awaits Senate confirmation.

A Senate approval will be an unthoughtful victory for those who relish a triumph of politics over economics. But, is that a victory for good governance? What should we expect from a Fed that thinks that Global Warming and the pursuit of Diversity trump the already abused dual mandate of restrained inflation and maximum employment?

The only issues now are how big a jump in the Fed target rate we will get on March 16, if not before? How high will the target rate be pushed? Will balance sheet contraction get onto the Fed’s policy horizon?

The Fed has created far more market uncertainty by its laggard monetary policy actions and its attraction to being a significant agent of social change. As a Central Bank, this Fed has gone far beyond legendary Chairman William McChesney Martin Jr.’s obiter dictum that the Fed “is independent in Government.” Martin at least had the courage to defy LBJ and raise interest rates by 50 basis points in 1965 despite a trek to the President’s Texas-ranch as the Viet Nam war heated up spending.

The Fed’s actions should make Senators who will vote on Powell’s re-nomination think carefully. Do they really take Central Bank independence seriously? Or, are they happy that the Fed played a significant role in unleashing the cruelest “tax of all”— inflation?

If a Company underperformed its projections as badly as this Fed, an activist Board would find another CEO. That would be standard corporate governance. The Senate can’t fire the President, but it could give a vote of “no – confidence” on the President’s CFO! That is unlikely, but re-confirmation is a bad example of proper governance over America’s central bank.

Cosmetic Economics and Politics

Written March 3 after the close of the market yesterday before the Super Tuesday Primaries results but not posted until March 4 8:36 AM

The Fed’s Move: and the market’s reaction

Widely debated by the savants of economic forecasting at the end of last week, the Fed cut 50 basis points off its target rate. This came after a kind of coordinated mouthing of mutual support by various countries in the G-7, but no substantive policy change. Australia, hard hit by China’s massive slowdown had already cut their rate prior to the G-7 communique and the Fed’s announcement and press conference. Continue reading

Ostrich Policy: escalating the tariff war with China

The present Administration wants to talk and act tough with China and has deployed various tariff and other economic tools to induce China to change some of its most important trade policies. China currently requires the transfer of American technology as the price of a firm’s “admission” into China. We don’t think that our campaign for IP protection offers a good prediction on how the Chinese will ultimately respond to our charges. We think that “selling that story” to the U.S. voter will make it much harder to achieve the goals we have set for ourselves in this current commercial policy war. Continue reading

The Fairness Doctrine and Economic Change

Formal economics used to be almost entirely devoted to issues of the allocation of scarce resources.  A subset of inquires, usually called welfare economics, frequently explored how  different allocative schemes affected economic welfare.  Welfare, however, had a rather arcane meaning in formal economics because inter-personal comparisons were generally frowned upon in formal theory and applications.   To get around the “dryness,” of such studies, economists adopted a compensation principle where by if at least one person was made better off and none worse off, then welfare was improved.  This skirted the issue of “fairness,” or as some wrote about it, of “justice.”   What if compensation by the winners was not paid to the losers after an economic policy change?  A mere glance at today’s media tells us that issues of “fairness” rule the day, almost to the exclusion of discussions of efficiency.   Social change is often motivated by issues of fairness and politicians of every stripe place fairness at the top of their choice menu.   But, what is fair to one person, clearly could be unfair to another.  Moreover, the achievement of “fairness,” brings with it economic costs.   The latter are often ignored, but the consequences should not be.   To truly be fair, we need to evaluate the cost of achieving fairness, however it is defined.   This is the first of a series of notes that discuss aspects of the linkage between fairness and efficiency in political economy.

Continue reading