The Full Employment Act. Ignored by Trump and Harris alike…

Last week, Vice President Kamala Harris and former president Donald Trump messaged on the issue of the political independence of the Board of Governors of the Federal Reserve System. Mr. Trump expressed his wish for an Executive branch that is more involved in the decision to change interest rates. He has expressed a desire for lower interest rates believing lower rates to play a role in strengthening the U.S. economy.

Ms. Harris, on the other hand, has stated that she would respect the political independence of the Federal Reserve; that as president, she would never interfere in the Federal Reserve System’s decision-making process.

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From a statist perspective, Ms. Harris makes a point, unbeknownst to her. The State has an interest in expanding and maintaining the connectivity of the domestic and international commercial order by the careful management of its money supply. Can it afford to have the financial infrastructure interrupted by the ebbs and flow of political sentiment?

Imagine a scenario where one four-year term of an administration promotes a strong dollar policy at the risk of lower demand for domestic product and services coinciding with lower domestic prices, while a successor administration promotes a weak dollar policy that while making American exports cheaper runs the risk of domestic prices being driven up because more money in the domestic economy is bidding up consumer prices.

This topsy turvy approach to monetary policy would upset the electorate and likely raise the level of social strife. The State cannot expand and maintain itself in such an environment. Its executive power would be eroded, and in a worst-case scenario, invalidated.

As de jure head of state, Ms. Harris or Mr. Trump should have State expansion at the top of their agenda and keep this in mind when creating and administering policy. For anyone considering the presidency, they should also consider the de facto status of the elected head of state: the State has no head. As de jure head of state, a president is a representative of the nation-state’s philosophy and serves as a rally point for the populace. The populace will only rally around you if you safeguard some semblance of stability in the political economy.

Rather than bringing an elephant into a room full of fine china, Mr. Trump and Ms. Harris should focus on the opportunity under the law to use the persuasive power of the bully pulpit. A president’s number one tool is persuasion, whether messaging to the populace or to policymakers. When Congress passed into law the Full Employment and Balanced Growth Act of 1978, it called on the Congress, the President, and the Board of Governors of the Federal Reserve System to coordinate on economic policy for the purpose of battling inflation and unemployment and securing economic growth. I believe this means that when the president proposes her goals and targets for the economy that she is able to persuade fiscal and monetary policy makers to reconcile their goals with hers.

The reconciliation process will call for an approach a bit more aggressive than what Ms. Harris is falling back on, and an approach a little less aggressive than what Mr. Trump is calling for.

Alton Drew

11 August 2024

For more of my take on the American political economy, buy my book at amazon.com/author/altondrew.