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The centralization of power



The centralization of power

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

A small group of allies of the former president — whose work is so secretive that even some prominent former Trump economic aides were unaware of it — has produced a roughly ten-page document outlining a policy vision for the central bank, according to acquaintances. with the case. . . .

Several people who have spoken to Trump about the Fed said he apparently wants someone in charge of the institution, which will effectively treat the president as an ex-officio member of the central bank’s rate-setting committee. Under such an approach, the chairman would regularly ask Trump’s opinion on interest rate policy and then negotiate with the committee to guide policy on the president’s behalf. Some advisers to the former president have discussed requiring candidates for the Fed chairmanship to privately agree to consult informally with Trump on the central bank’s decisions, people familiar with the matter said.

These things usually don’t end well. (Think of the Nixon/Burns Fed of the early 1970s.)

Here is Patrick Horan (my colleague at the Mercatus Center) in the National Review:

Some of Donald Trump’s economic advisors are Reportedly discussing ways to devalue the U.S. dollar if the former president is re-elected this year. Chief among these advisers is Robert Lighthizer, who spearheaded the Trump administration’s trade war with China and who could serve as 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, leading to a reduction in the trade deficit.

They might want 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 reason from a price change, but Horan knows how to avoid that mistake. He points out that any analysis of the impact of devaluation must start with the question of how it should be achieved:

Let’s start by looking at a crucial 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 pursue independent monetary policy). Up to two can be chosen.

Since 1971, the United States has opted for free capital flows and monetary sovereignty while allowing exchange rates to float based on market fundamentals. This choice is the norm among large, developed economies. To weaken the dollar to a certain desired rate against other currencies means fixing the exchange rate. This means that the free movement of capital or monetary sovereignty will have to disappear.