The centralization of power

Hardly a day goes by without further evidence that the world is moving toward Viktor Orban-style authoritarian nationalism. Here’s the latest piece of evidence, from the WSJ:

A small group of the former president’s allies—whose work is so secretive that even some prominent former Trump economic aides weren’t aware of it—has produced a roughly 10-page document outlining a policy vision for the central bank, according to people familiar with the matter. . . . 

Several people who have spoken with Trump about the Fed said he appears to want someone in charge of the institution who will, in effect, treat the president as an ex officio member of the central bank’s rate-setting committee. Under such an approach, the chair would regularly seek Trump’s views on interest-rate policy and then negotiate with the committee to steer policy on the president’s behalf. Some of the former president’s advisers have discussed requiring that candidates for Fed chair privately agree to consult informally with Trump on the central bank’s decisions, the people familiar with the matter said. 

These things don’t tend to end well.  (Recall the Nixon/Burns Fed of the early 1970s.)

Here’s Patrick Horan (who was my colleague at the Mercatus Center) in the National Review:

Some of Donald Trump’s economic advisers are reportedly discussing ways to devalue the U.S. dollar should the former president be elected again this year. Chief among these advisers is Robert Lighthizer, who spearheaded the Trump administration’s trade war with China and could be Treasury secretary in a second administration. Proponents of the idea argue that making the dollar weaker against other currencies would make U.S. exports relatively cheaper, which would lead to a reduction in the trade deficit.

They might wish to check with some Latin American economists to see how the “devalue your way to prosperity” approach worked in that region of the world.

Reporters often engage in reasoning from a price change, but Horan does a nice job of avoiding that mistake.  He points out that any analysis of the impact of devaluation must begin with the question of how it is to be achieved:

To start, let’s consider a critical concept in international economics: the “impossible trinity.” According to this principle, a country cannot have all three of the following at the same time: a fixed exchange rate, free movement of capital or investment, and monetary sovereignty (the ability to conduct monetary policy independently). It can only pick a maximum of two.

Since 1971, the United States has chosen free capital flows and monetary sovereignty while letting exchange rates float based on market fundamentals. This choice is the norm among large, developed economies. To weaken the dollar to some desired rate vis-à-vis other currencies means fixing the exchange rate. That means either free movement of capital or monetary sovereignty will have to go.