Just Say No To Kevin Warsh
Apparently Kevin Warsh is in a dead heat with Janet Yellen for Fed Chair. I tried to articulate just how bad this is but the whole thing has me shrill. Thankfully there are many other folks you can read while I gather my bearings. For my part, I’ll leave you with this: back during the crisis some of us used to say “shut-up Warsh” to indicate that the previous speaker had just made a case so incoherent it wasn’t worth addressing.
When [first] nominated by President Bush, Warsh was panned in unusually harsh terms:
Most of President Bush’s nominees to the Federal Reserve have earned accolades from across the economic and political spectrums.
And then there’s Kevin Warsh.
“Kevin Warsh is not a good idea,” said former Fed Vice Chairman Preston Martin, who was appointed by Republican President Ronald Reagan in 1982. “If I were on the Senate Banking Committee,” which must approve Fed nominees, “I would vote against him.”
Being wrong with conviction is a trademark of President Donald Trump. Perhaps that makes Kevin Warsh, his new perceived favorite to replace Janet Yellen as Federal Reserve chair, an ideal candidate.
Warsh’s mistaken policy views are especially egregious since he was brought into the Fed specifically for his purported expertise in financial markets, which were still sending panic signals even as Warsh tried to strike a more inflation-hawkish, sanguine tone.
Can we now be sure that Warsh was wrong about monetary policy during the Great Recession? I think so, but I’d also like to briefly discuss the implications of the other view, that we can’t be sure he was wrong. If that were true, then monetary economics would be useless. There would be no core of knowledge worth teaching to our students.
Former Federal Reserve Governor Kevin Warsh’s column in Tuesday’s Wall Street Journal was so riddled with errors and misperceptions that it is hard to believe he was actually a governor.
In this week’s Wall Street Journal, Michael Spence and Kevin Warsh say the Federal Reserve’s policy of bond buys, or quantitative easing(link is external) (QE), is responsible for sluggish business investment in recent years.
There is no logical or factual basis for their claim. Indeed, logic and facts point strongly in the opposite direction. It is the reluctance of businesses and consumers to spend in the wake of a historic recession that is forcing the Fed and other central banks around the world to keep interest rates unusually low—not the other way around.
…Taylor and Warsh argued publicly against additional monetary stimulus in November 2010, when the unemployment rate was almost 10 percent and the inflation rate had fallen nearly to 1 percent. Their concerns about excessive inflation proved to be completely unjustified. Yellen, by contrast, supported stimulus.
My friends Mike Spence and Kevin Warsh, writing in yesterday’s Wall Street Journal, have produced what seems to me the single most confused analysis of US monetary policy that I have read this year (Brad DeLong has expressed related views). Unless I am missing something — which is certainly possible — they make a variety of assertions that are usually exposed as fallacy in introductory economics classes.[Editors Note: No Larry you are not missing a thing]
Warsh is indeed someone who has been wrong about everything; a bubble denier who spoke of strong capital markets before the crash, a hawk who has been warning about the risk of inflation for three years, an invoker of invisible bond vigilantes who somehow managed to describe the supposed threat from these vigilantes as somehow both a certainty and unknowable.