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Thursday, January 17, 2019

Reprinted with permission from CEPR.

A consistent drumbeat in Donald Trump’s campaign for the presidency was a promise that he would stand up for the American working class against financial elites who had rigged policy to enrich themselves, a message that clearly resonated with some voters. He has reneged on this commitment in virtually every area of public policy, including providing better health care coverage than Obamacare, crafting better trade agreements, making sure tax cuts go to the middle-class ,and standing up for workers’ rights at work.

This month workers who supported Trump may see another betrayal. It has been reported that Trump may pick Kevin Warsh, who married into a billionaire family, to replace Janet Yellen as the next Chair of the Federal Reserve Board of Governors (BOG). Decisions made by the Fed’s BOG are extraordinarily important for American workers. In recent years, pressure has built for the Fed to begin applying the brake to America’s economic recovery by raising interest rates. The rationale for this is that the Fed must slow growth to tamp down inflationary pressures. Warsh has consistently been on the side advocating for slowing growth to fight inflation. But these inflationary pressures appear nowhere in either wage or price data. And if the Fed hits the brake prematurely, millions of Americans could lose opportunities to work, and tens of millions could see smaller wage increases.

One underappreciated aspect of raising interest rates is that they will put upward pressure on the value of the U.S. dollar, and this stronger dollar will make U.S. exports less competitive on world markets while making foreign imports cheaper to American consumers. This will in turn lead to rising trade deficits which stunt growth in manufacturing employment. Warsh knows about this argument, but he just doesn’t really care:

“I would say that the academy’s view, the broad view of folks at the IMF and economics departments at elite universities, is that if only the dollar were weaker, then somehow we’d be getting this improvement in GDP arithmetic, we’d have an improvement in exports and we’d be getting much closer to trend. That’s not a view I share. My own views are that having a stable currency, now more than ever, provides huge advantages to the U.S. The U.S. with the world’s reserve currency is a privilege, but it is a privilege that we can’t just look to history to remind us of; it’s a privilege we have to earn and continually re-earn. And so it does strike me that those that think that dollar weakness, made possible by QE as one channel for QE, is the way to achieve these vaunted objectives are going to be sorely disappointed.”

The effect of a high dollar in worsening the trade deficit is not just something that people at the I.M.F and in elite universities say; it is well-established in the data. Warsh doesn’t offer any evidence to counter the widely accepted view that a high dollar leads to a larger trade deficit, he just says that he doesn’t like it.

This blithe waving-away of clear evidence that a rising dollar will lead to larger trade deficits and displace American manufacturing jobs is par for the course when it comes to Warsh’s views of globalization. He is an ardent proponent of trade agreements that expose American workers to fierce global competition but provide even greater protection for corporate profits, protections that come at the expense of policymaking autonomy and democratic accountability in the poorer trading partners of the United States. As a Fed governor he proclaimed that the Fed had a role in weighing in to support trade deals like NAFTA and the Trans-Pacific Partnership, departing from the general view that the Fed should restrict its scope to issues directly related to the conduct of monetary policy.

A Warsh nomination for Fed chair would be a perfect example of how the financial sector capture of the Federal Reserve has hamstrung the economic leverage and bargaining power of low and middle-wage workers. Finance hates inflation and doesn’t especially care if the unemployment rate is unnecessarily high. As a result, the Fed has for decades greatly overweighted its mandate to avoid above-target inflation while underweighting its mandate to pursue maximum employment. Part of the fallout of this frequently too-tight stance of monetary policy has been chronic trade deficits which have cost the country millions of manufacturing jobs. And while growing evidence shows that America’s stance towards globalization in recent decades has privileged the interests of corporations over typical workers, Warsh wants the Fed to be an advocate for doubling-down on this failed approach.

If Trump was serious about unrigging the rules of the American economy and globalization to help American workers, Warsh would not be in the running to be Fed chair. He both lacks the stature and the competence for the position. The clear choice is to re-appoint Janet Yellen, a chair with a solid track record as Trump himself has repeatedly acknowledged.

 

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13 responses to “Will Trump Betray Workers Again By Naming Kevin Warsh As Fed Chair?”

  1. FireBaron says:

    Living in the Northeast (originally NY State, now Connecticut) we learned about 40 years ago how empty Teflon Donnie’s promises were. We were familiar with his corporate bankruptcies, after losing Other People’s Money. His habit of stiffing his creditors and tradesmen. His attacking anyone he perceives as doing better than him. Now that he is dismantling every protection for the middle and lower class, I ask everyone I know that voted for him how they like losing their insurance. How they like the same guys who caused many of them financial woes in the housing market are now in charge of our nation’s finances. How they like every promise he has made. And that isn’t even coming close to the damned wall.

    • TZToronto says:

      A high dollar, especially in the time of Trump, will encourage other countries to create trade agreements that exclude the U.S. Canada now has a trade deal with the EU and is working on agreements with Asia. Meanwhile, Trump is doing all he can to end NAFTA or tilt it so that the US will dominate North American trade to the detriment of Canada and Mexico. The result will be the off-shoring of more American jobs and the lowering of the standard of living of many Americans, while the rest of world abandons trade deals with the US–which can’t be trusted to abide by its agreements. Canada knows well how the US attempts to violate the terms of its agreements by continually claiming that Canadian exports are unfairly subsidized (dairy products, softwood lumber, and, most recently, Bombardier’s C-series aircraft). Who wants to deal with a country that always looks for ways to get around those deals?

      • dpaano says:

        AND, when he runs up the deficit with his idiotic tax plan, and he figures out that, unlike his businesses, he can’t file bankruptcy….we’ll all be screwed with a capital “F.”

        • TZToronto says:

          At some point, confidence in the United States may begin to be questioned, especially if the US debt balloons in the absence of a financial crisis such as that with which President Obama was faced when he assumed the Presidency. Trump’s inability to manage the US economy may convince EU countries, China, and Japan that the US dollar as the reserve currency may not be such a good idea. When global financial transactions start to be denominated in Euros and US domination starts to wane (and it could happen quickly), American voters may realize that Trump and his elitist, spendthrift appointees represent one of the biggest mistakes in US history. Make America great again? Really?

          • dpaano says:

            It’s a known fact that whenever we have a Republican in the Oval Office, he and his cohorts spend like drunken soldiers and the Democrats, when they get the Oval Office back have pay the piper for the mistakes of the previous administration…..much like President Obama had to pay for Bush’s spendthrift ways!! As I mentioned, Trump has to realize that he can’t just file “bankruptcy” if things don’t work out like he could in his real estate business….that doesn’t work for a country! Things just seem to get worse and worse every day that he’s in the Oval Office, and it’s getting scarier and scarier!!!

      • Dominick Vila says:

        The main beneficiaries will be China and the EU.

    • dpaano says:

      And I bet they all come up with the requisition excuses and the parroting of “give Trump a chance” BS that we always hear from these people because they refuse to see what they’ve wrought by putting this idiot in the Oval Office!!!

      • angryspittle says:

        They’re the guy dying from the snakebite and they would bring the snake in again……..Dunning-Krueger squared…..

    • Dominick Vila says:

      Trump loves whatever helps Trump, and his worshipers don’t mind it a bit.

  2. Richard Prescott says:

    What can anyone expect from Donnie Boy. It is all about him, what he can do to make himself richer. He doesn’t care about the country nor its people.
    But he does care a lot about lying. He loves lying. He does it all the time. And he loves it even more when it is pointed out to him he is lying, he lies about that also.
    Many of us followed and knew about Donald “the liar” Trump and his history the last 40 years. The trouble is that despite facts people were swayed by his Russian friends in their successful disinformation campaigns.
    So many of those who voted for him are now having to live with the fact they were duped.

  3. dpaano says:

    I wonder how much money this idiot paid into Trumps campaign! That seems to be the way he decides who’s qualified or not qualified to join his cabinet….to hell with qualifications for the actual job! None of his nominations have the requisite qualifications and have done nothing but run this country into the ground and decimate all the good things that previous administrations accomplished. I have NO idea where their brains are at, but they are dangerous and are not “making this country great again!” If anything, they’re making this country an embarrassment to the rest of the world! Unfortunately, those of us who don’t agree with Trump get blamed by other nations also!

  4. angryspittle says:

    In answer to the headline: Of course.

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