When the Bank of Canada went looking to fill a vacant spot on its policy-making governing council in 2018, it hired a global executive recruiter and posted a long list of qualifications.
The bank said the candidate must have “deep and extensive knowledge” of macroeconomics, monetary theory, financial markets and the payments system, along with experience designing and using large macroeconomic models, plus a track record as a good manager, communicator and analyst. Oh, and they should be able to speak both official languages.
Contrast that to U.S. President Donald Trump, who went with his gut in tapping former pizza chain boss Herman Cain to sit on the U.S. Federal Reserve.
“He’s a friend of mine. He’s somebody who gets it,” Mr. Trump told reporters.
After a five-month search, the Bank of Canada quietly hired respected University of British Columbia macroeconomist Paul Beaudry last December.
Mr. Cain’s bid to join the Fed isn’t going nearly as smoothly as opposition grows to Mr. Trump’s ill-considered choice, even among Republicans.
The U.S. Senate, which must confirm top Fed officials, may well do the right thing. More worrying is that Mr. Cain, with no background in economics or finance, was ever in the running.
Mr. Trump’s claim that Mr. Cain “gets it” points to what the President really wants: a loyal partisan committed to keeping the U.S. economy jacked up on easy money just long enough to get him re-elected next year.
The danger is that Mr. Cain’s controversial candidacy is a diversion, calculated to deflect attention from Mr. Trump’s other choice to fill one of two vacancies on the Fed – libertarian economist Stephen Moore – or to make subsequent nominees seem more suitable.
Like Mr. Cain, nothing in Mr. Moore’s background suggests he’s Fed-ready. Don’t look for deep knowledge of macroeconomic models and monetary theory on his résumé. Mr. Moore has spent his career devoted to TV punditry, Republican principles of low taxes and small government, and more recently, to Mr. Trump. His views on the Fed have conveniently shifted depending on who is in the White House. When Barack Obama was president, he warned repeatedly about the dangers of keeping rates low for long. With the economy running even hotter after Mr. Trump’s election, he shifted to calling for rate cuts. As Harvard University economist Greg Mankiw, a former economic adviser to U.S. president George W. Bush, put it in a recent blog post: Mr. Moore lacks the “intellectual gravitas” for the job.
Rejecting Mr. Cain should be a no-brainer. He has faced several credible allegations of sexual harassment, which helped derail a run for the 2012 Republican presidential nomination. His economic ideas are on the fringes, including advocating a return to the gold standard and a dangerously regressive tax overhaul at a time of growing inequality. And he has peddled conspiracies about the government faking economic statistics – the same ones the Fed uses to steer monetary policy. He also set up a political fund that raised money for Mr. Trump’s favoured candidates in last year’s midterm elections, and he’s been a reliable cheerleader for the President on his online radio show.
Mr. Trump, of course, is just fine with that. What he wants is someone – anyone – who will get the Fed and its chairman, Jerome Powell, to do what he wants.
There is no law that says members of the Federal Open Market Committee must park their political views at the door. But they have, by convention, making the Fed a rarity in hyper-partisan Washington. That has enabled the central bank to go about its business of moving interest rates, taming inflation and regulating financial institutions, largely free of political meddling.
Having loyalists on the inside would pose a threat to the Fed’s independence, opening the door for future presidents to do the same.
Fortunately for Mr. Powell and the Fed, the bank’s structure would keep Mr. Trump’s picks from making too much partisan mischief. They would have just two votes among 12 on the FOMC, which is made up of seven Fed governors and five rotating heads of the regional reserve banks.
Recognizing the gravity of what’s at stake, former Fed chair Janet Yellen warned last week that senators have a responsibility to put “qualified individuals” on the Fed who are committed to central bank independence.
No doubt Ms. Yellen has in mind candidates a bit more like Bank of Canada deputy governor Paul Beaudry, and less like Mr. Cain or Mr. Moore.