The Bush Institute’s Contributions To Monetary Thought
A week ago, I criticized* the Bush Institute’s “Four Percent Growth Initiative” because it made no reference to monetarist thought. It was subsequently brought to my attention that the Bush Institute has published a book** which contains a chapter on monetary policy. I bought the book and read the relevant chapter.
It is worse I expected. It is embarrassing and adds nothing to an informed discussion of monetary policy. I will not reiterate my earlier comments concerning the intellectual limitations of “Texas Commercial Bank Thought”, also known as “Dallas Fedism”, which is unsurprisingly the ideology espoused by the Bush Institute. I will simply provide excerpts from the chapter and allow the reader to draw his own conclusions concerning the intellectual value of the thoughts emanating from the Bush Institute in Dallas:
The starting point for 4% growth is a commitment to a sound dollar. In very simple terms, that means creating the expectation that the dollar will retain the value that it has now for the next twenty or fifty years.
It costs the government nothing to create new dollars to offset dollar weakness, and there’s no competitiveness gain because of the reduced investment, so the theoretical endpoint is hyperinflation.
We need a strong and stable dollar policy. To create such a policy, the president should state that a strong and stable dollar is part of U.S. growth policy and will be implemented by the Treasury and the Fed. The White House should then insist that the policy be evaluated regularly by measuring the dollar against the price of gold.
Subscribe to Project Syndicate
Our newest magazine, The Year Ahead 2022: Reckonings, is here. To receive your print copy, delivered wherever you are in the world, subscribe to PS for less than $9 a month.
As a PS subscriber, you’ll also enjoy unlimited access to our On Point suite of premium long-form content, Say More contributor interviews, The Big Picture topical collections, and the full PS archive.
The Fed should follow up by using each FOMC statement to reinforce the policy of a strong and stable dollar. It can do that by using FOMC statements to measure the dollar against the value of gold and other currencies and also to discuss any inflation implications.
To emphasize its intention of putting a long-term floor on the value of the dollar, the Treasury should issue debt payable in dollars and payable in gold, as economist Judy Shelton has pointed out.
The United States is practically alone in pursuing a near-zero interest rate and letting its central bank to borrow short-term to buy up the national debt.
For those who can borrow cheaply, corporate proceeds often go abroad while most of the subsidized government borrowing turns into extra deficit spending.
Under the 2010 QE2 Fed bond-buying scheme, the more the Fed intervened in markets, the weaker GDP growth was each quarter.
Near-zero interest rates tag the dollar as the flight currency of choice for world markets.
There you have it. I won’t attempt to explain it. President Bush intends to have his presidential institute taken seriously in national policy discussions. Unfortunately, no one will take his institute seriously unless he does so himself. He really should ask qualified professionals to review his Institute’s publications before they are published. Had he done so, he might have been persuaded to have the chapter on monetary policy written by the man he appointed chairman of the Federal Reserve, or at least by someone who understands the monetary policy which was pursued during his administration.
But is President Bush aware that there is an unbridgeable gulf between Ben Bernanke’s views concerning monetary policy and those expressed in his institute’s book? I ask this because it has been reported that “Bernanke’s academic research hadn’t been discussed when President Bush was weighing his appointment to the Fed Chairmanship.” I wonder if Bush knows that Bernanke is a monetarist?
* “A Critique Of The Four Percent Growth Project at the George W. Bush Presidential Center”
** “The 4% Solution”, George W. Bush Institute, 2012