By Alexander William Salter
There was recently a heated debate in the United States Senate over the Federal Reserve Board. Dr. Lisa Cook, one of President Biden’s nominees, failed her confirmation vote 51-47. Senate Majority Leader Chuck Schumer (D-NY) voted “no,” which enabled him to bring Cook’s appointment up for another vote in the future. Senator Mitch McConnell (R-KY) did the same when, as Majority Leader, he tried to save Dr. Judy Shelton’s nomination in 2020.
In all likelihood, progressive Democrats will continue to support her. But Republicans and moderate Democrats have raised important questions about her qualifications for the job, as well as how she would likely conduct monetary policy.
In my opinion, Dr. Cook is not qualified for the position. Her expertise in economic history does not translate well to problems of monetary policy. Over her career, she focused her considerable intelligence on racial discrimination in the US economy. This is a worthwhile project. But it won’t help her at the highest levels of monetary policy decision-making.
There’s very little on Dr. Cook’s CV to suggest she knows the ins and outs of monetary policy. During her nomination hearing on February 3rd, she listed one promising qualification: election to the board of the Federal Reserve Bank of Chicago. But this happened less than a month prior, on January 13 (effective January 1)! Nobody is this quick a study.
Even more troubling is her response to a question Senator Pat Toomey (R-PA) posed during the nomination hearing. When explaining how she thinks about monetary policy, Dr. Cook endorsed a long-discredited economic theory, saying:
With respect to the shape of the Phillips curve, what we know in economics is…that there’s a tradeoff between unemployment and inflation. But we don’t necessarily know what that relationship is.
Kudos to Dr. Cook for embracing policy humility. But her comment reveals she’s about 40 years behind in her macroeconomic thinking.
There is no tradeoff between inflation and unemployment. The Phillips curve, which purported to show such a relationship, is dead. The Monetarists and New Classicals killed it. Good riddance. My colleagues Bryan Cutsinger and William Luther put it best: “Although the naïve Phillips-curve view was once fashionable, it is rightfully met with a snicker among economists today. It is the pastel bell-bottom leisure suit of economic ideas.”
No amount of easy money can put more people to work than the economy can sustainably employ. The number of jobs is determined on the supply side. Demand-side policy, such as monetary stimulus, can help the economy operate at its potential in the short run. But it can’t alter the long-run trends and patterns. If we try to give labor markets a shot in the arm by running the printing presses, the only result will be—you guessed it!—inflation.
This is not an exotic idea. It’s a standard result that we expect even undergraduate minors in economics to understand. That Dr. Cook appears not to is worrying. Not every nominee for the Federal Reserve Board needs to be a monetary policy expert. There is certainly a role for financial industry professionals. But Cook doesn’t have a background working in the financial industry. She’s an academic economist. And, if you’re an academic economist nominated to the Fed Board, you’d better know your stuff!
One might find her lack of expertise disqualifying by itself. But things look even worse when we consider the likely reason for her nomination. There’s been a recent, misguided push to expand the Fed’s mandate to include broader social issues, such as racial justice and climate change. This is a terrible idea. After more than 100 years of trial and error—with a lot of error—the Fed still can’t handle basic monetary policy! Yet asking the Fed to take on additional roles is increasingly popular among a subset of bureaucrats and academics who want to do an end run around the Fed’s Congressionally-directed objectives.
Our central bank has enough on its plate with monetary and financial stability. If you want to change environmental or social policy, you should look to Congress, not the Fed. Furthermore, the partisan nature of these disputes would further erode the Fed’s independence. As I wrote in a recent Wall Street Journal letter to the editor, “The Fed is too important to politicize.” Yet that’s what the Biden administration tried to do by putting forward unqualified nominees like Dr. Cook.
We shouldn’t disparage Dr. Cook for her chosen research agenda, nor her desire to pursue public service. Both are good and healthy. But her background, scholarly interests, and public remarks make her a bad fit for the Federal Reserve Board. At a time of rampant inflation, we need the Fed to devote itself to restoring price stability. It’s time to end mandate drift once and for all. We need qualified nominees who understand the proper role of monetary policy. Unfortunately, Dr. Cook falls short on both counts.