In a recent interview, Elizabeth Warren was asked by Ezra Klein what she could do if Republicans maintain control of the Senate and she can’t get any of her plans through Congress. (And let’s be honest: even if the Democrats do gain control of the Senate, she may have problems because the Democratic elites are still far to the right of the party itself.) Her answers were good — discussing the importance of putting people in charge of federal agencies who actually believe in their missions.
But she didn’t mention the single most important reason that presidents have a profound effect on the economy: the Federal Reserve Board. This is something I discussed years ago, Why the Economy Does Better Under Democrats. It was based on an article by economist Mark Thoma where he explained why, since World War II, the economy has done much better under Democratic than Republican presidents. There are a number of reasons for this but control of the Fed is one that the president has complete control over.
I suppose I should clarify a few things. The economy has done fine under Trump. But that appears to be due to the tremendous amount of slack in the economy. Most of what Trump has provided has only hurt it: tariffs and political uncertainty. Even the tax cut was designed so as to have a minimum effect on the economy in the short-term.
One place Trump has complained (rightly so) is that the Federal Reserve has been raising interests rates and thus slowing the economy. The reason for this is that the Fed chair, Jerome Powell, believes that we are on the verge of an inflation spiral. It’s funny because this is pretty much what all the establishment types have been thinking for half a decade.
But it’s Trump’s own fault. He could have appointed a Fed chair that would have pursued the kind of expansive monetary policy Trump wants. But like the judges he nominates, Trump has no idea who to nominate to the Federal Reserve. So he just listens to the establishment Republicans that he surrounds himself with. Actually, we are lucky we got Powell. He’s really no different from the last Fed chair, Janet Yellen. It really raises the question of why Trump replaced her. But I think the answer is clear: he thought he was getting something different.
Unlike Trump, Elizabeth Warren knows stuff — especially when it comes to the economy. I don’t expect she would make radical appointments to the Fed. But she would know what she is doing. And the monetary establishment might think her appointments were radical. I know she wouldn’t appoint the kind of hard-money zealots that conservatives prefer.
And she’s right that her policies and appointments will make a huge difference. Putting someone in charge at the EPA who will clamp down on polluters will mean corporations have to spend some of their profits on mitigation — you know, forcing them to employ workers rather than simply making the rich even richer.
Additionally, she can help our economy by reversing many of Trump’s policies like his tariffs — and threats of tariffs.
Elizabeth Warren has a plan in case Republicans stymie all her legislative plans. She can use executive power to make the world better — just as Trump has used it to make it worse.