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Delay the Vote on Judy Shelton’s Fed Nomination

Delay the Vote on Judy Shelton’s Fed Nomination

Judy Shelton’s nomination to the Federal Reserve Board of Governors has always been controversial, and now that it has been approved by the Senate Banking Committee, the potential for both political and financial disruption is high. That’s why the full Senate should delay any decision on her nomination until 2021.

It’s not because Shelton’s views on monetary policy are out of step with the times. It’s that she has recently shifted those views — quite dramatically — to be more in line with those of President Donald Trump, raising questions as to what type of monetary policy she would pursue if he were not re-elected. Just as disconcerting, her confirmation would open the door for increasingly heterodox appointments at the very moment when the Fed needs to fight hard to avoid mission creep.

Shelton is disciple of the legendary economist Robert Mundell, known in the world of monetary policy as the father of the euro. His life’s project has been to replace national currencies with supranational standards or accords.

For her part, Shelton has supported, in principle, the idea of replacing the dollar with a single North American currency known as the Amero. While acknowledging that there would be political backlash to such a move in both U.S. and Mexico, she has advocated that both countries — and potentially many others — agree to tie the value of the currency to single international standard.

The goal of harmonizing international currencies is a noble one. Doing so reduces a major source of risk associated with foreign trade, allowing the economies of disparate nations to become more connected. In the case of the euro, is was widely believed that this deep integration would not only foster growth but also promote peace across the continent.

The reality, however, has been less than ideal. The economic policies of euro-area nations are now subordinate to that of the European Union. This proved nearly catastrophic for the countries on the periphery of Europe in the aftermath of the Great Recession.

Shelton’s past proposals would have severely hindered if not rendered impossible the type of liquidity efforts the Fed is now engaged in. They would have made the U.S.’s coronavirus relief policy dependent on economic conditions in other countries.

While she has not quite disavowed her past positions, Shelton has struck a far more nationalist tone since being nominated. This may reassure Trump, but it also suggests that a potential member of the Fed might be tailoring her positions to fit the politics of a president.

That’s a dangerous precedent to entertain, particularly when some lawmakers on the left have argued that they intend to use the power of the Fed to achieve political ends, such as funding the Green New Deal. The ECB, amazingly, seems to be contemplating a worst-of-both-worlds scenario by being both unresponsive to the needs of national economies and more involved in climate-change politics.

So far the Fed has been able to resist this type of pressure. Chairman Jerome Powell has steered a difficult course between being maximally responsive to the needs of the U.S. economy and minimally responsive to political pressure. Appointing Shelton to Fed would make this task more difficult.

Even of some senators see Shelton’s long-standing commitment to laissez-faire capitalism as a strong reason to vote for approval, they should hold off on making such a consequential decision now. At a minimum, senators should not vote on Shelton’s nomination until they are assured that her appointment will not undermine the Fed’s commitment to independence and political neutrality.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Karl W. Smith, a former assistant professor of economics at the University of North Carolina and founder of the blog Modeled Behavior, is vice president for federal policy at the Tax Foundation.

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