Re-nominate Jay Powell already; What Biden can do to boost his approval rating; Build Back Better won't help next year, but it should be passed anyway because it is good

Supposedly, we will hear about whether Jay Powell has been renominated to be Fed Chair within the next week. I wrote over the summer about the job Powell has done since taking over in 2018 and gave him a resounding endorsement. Biden should have renominated him then at the latest. That he has dragged his feet on it has been one of the most frustrating things about his tenure so far. He has been very negligent with the Fed Board, too. One seat has been open for a year and he has not nominated anyone to it. I really thought his economic team had learned from Obama’s mistake in not nominating people to the Fed Board, but, clearly, they have not.

To appreciate just how much Powell has done, you have to understand that those on the left who are into monetary policy have for years been begging the Fed to focus on achieving full employment. Powell, a Republican, has done just that. He has done that while maintaining bipartisan credibility. Should he be renominated, his confirmation would be assured and almost certainly pain-free. The same cannot be said of anyone else.

I have nothing against Lael Brainard, the other most likely pick. She seems perfectly fine and would probably be very capable at the job. From what I have read, it does not look like she would do anything substantively different from what Powell has done and will continue to do. What she does not have is bipartisan credibility. To have a Fed Chair confirmed on a party-line vote would set a horrible precedent. The Fed is one of the few federal agencies that has avoided being tainted by partisan politics. I really want it to stay that way. The last thing I want is for the Fed to become just another partisan institution where interest rates are raised or lowered based on whether the Fed Chair likes whoever is in the White House.

What drives me off the wall about the opposition to Powell from the left is that it has nothing to do with monetary policy. For example, today, Senators Jeff Merkley and Sheldon Whitehouse announced their opposition to Jay Powell being renominated. Their reason? Climate change. Other reasons cited by some on the left include “racial justice.” These folks really need a crash course on what the Fed actually does. The job of the Fed is monetary policy. The Fed cannot solve climate change nor should it try to. If you want to solve climate change, you are going to have to do it through Congress, which Build Back Better (BBB) does. If you want racial or any kind of economic justice, you should want Powell there so he can continue to push for full employment, which will help everyone.

I doubt any of those on the left who want the Fed to fight for their causes realize it, but they are opening a very bad door. For starters, it would be establishing the Fed as trying to push for goals that are far out of its purview. If you think it’s good for the Fed to start fighting for left-wing causes, imagine the shoe on the other foot. Let’s say the next Fed Chair promises to fight for “racial justice” and against climate change. I guarantee you the next time Republicans are in charge they will nominate someone who pledges to not do that. Worse, they will take advantage of the door that was opened and nominate someone who will push for their causes. Can you imagine a Fed Chair trying to defund Planned Parenthood or eliminate taxes on billionaires?

The Fed is massively important, especially now with inflation being a major issue. Over the coming weeks and months, there will be pressure to contract monetary policy further. The Fed is already reducing its purchasing of bonds (tapering) and is likely to raise interest rates sometime next year. I am not sure where I stand on those moves in all honesty. Most of those who I read are in favor of tapering and I trust their judgment, but I know little about it so I am refraining from having any firm opinions on it. What I am sure of is that we have millions of people who are still not back in the workforce and we need to get as many of them there as we can ASAP. Biden has two paths he can go down to get the same result. One is easy and will require no spending of political capital. The other is messy and will exact a big toll while setting an awful precedent. The choice should be obvious.

While inflation has been underestimated by the Fed, I do not want there to be an overreaction to it. It would be a real shame if it turns out inflation really was not going to keep surging, but in overreacting to it we killed the goose that laid the golden egg. Powell is in a better position than anyone on planet earth to fight against that urge. Biden, for your own sake and ours, please renominate him.

Some things Biden can do to try to get his footing back

Biden’s approval rating now is not good. If the midterms were held today, it would be awful. The good news is there is plenty of time for things to turn around. I expect the midterms to not go well because that is how midterms work for the party in the White House. Holding the House will be extremely difficult, but holding the Senate could happen. If nothing else, it would be nice to keep losses to a minimum so maybe Democrats can regain them in 2024.

Much of what is afflicting Biden’s approval rating is beyond his control. He cannot do anything about gas prices and has a very limited ability to influence global supply chains. That said, there are some things he can do both substantively and performatively. The latter is dumb, but that is most of what politics is. Biden needs to convince people that he is trying to deal with things like inflation even if he is limited in what he can do. An example of a good performative measure is his calling on the FTC to investigate oil companies for price gouging. It will not lead to anything, but at least can help give people the impression that he has the right priorities. His emphasis on using the infrastructure bill to fight inflation is also good even though it will likely have no real effect on it. The same is true with framing BBB as fighting inflation.

On substance, as I wrote before, the most effective thing Biden can do is to stop wearing a mask. He needs to do everything he can to encourage people to go back to their lives. There are many different things that are afflicting his approval rating now, but what they all boil down to is that things were supposed to be normal and they are not. He needs to do everything he can to help us get there. Ditching masks and going back to our lives is the single biggest thing we can all do. With his encouragement, more people will go back to their lives and we will all be better off for it.

If Biden stopped wearing a mask and encouraged places to lift mask mandates, I have no doubt many would follow. Since almost everyone who is still in hiding is politically liberal, encouragement of returning to normal life by Biden and other Democratic elected officials will help. It might also help with inflation. If people buy fewer things online and go out more, it would reduce demand for goods and increase demand for services, which will help rebalance the economy. To be sure, I have no idea how much it will help to reduce inflation, but it will not be nothing. It will also help with perceptions that things are getting back to normal, which may be even greater politically than any price reductions.

Another substantive action Biden can take is to undo or at least impose a moratorium on the tariffs Trump enacted against China. Janet Yellen has acknowledged that doing so would help with prices. That they are still in place is beyond me and is almost as frustrating as the needless drama with respect to the Fed. The fact that the administration acknowledges the tariffs are hurting consumers and still will not get rid of them boggles the mind.

Any moves to ease congestion at ports would be good. I doubt there is a whole lot Biden can do, but every little thing helps. The infrastructure bill includes money for ports, but that is a longer-term project.

In general, the issues involving supply that have emerged in the last year should spark a rethinking of many priorities. On the left, emphasis has long been on dealing with demand, which is crucial, but only one half of the equation. Supply needs to be able to meet demand. There can be all the demand in the world, but if supply is not adequate, the result will mostly be higher prices. That is true for things such as housing and healthcare and so many others. I recommend this piece to get an idea of where it would be wise for the left and Democrats to start focusing on. As important as that is, it is also a longer-term project and not one that will immediately help with Biden’s approval rating or the midterms.

BBB won’t matter for 2022, but should be done anyway

I am glad that the infrastructure bill has passed and think it will do many good things. That said, I doubt it will have much of an impact on Biden’s approval rating. Infrastructure is not really something anyone gets fired up about and is very non-ideological. I want BBB to pass and soon so Biden can pivot to addressing inflation or at least putting on a show to make it look like he is. I doubt BBB will make any real difference for the midterms and that is okay. It has the potential to help millions of people in so many ways and that is what counts. The only worry I have is that it will all be temporary.

I understand the desire to want to do everything under the sun, but that is just not possible. Those who are pushing to do everything and not prioritizing things really don’t seem to get that you have to pick your battles wisely. Joe Manchin holds the keys and something will only pass if he lets it. He has already limited BBB in many ways and has forced out many provisions. I don’t like it, but that is the reality of the situation.

Say what you want about Joe Manchin, but that fact that a Democratic Senator from a blood red state is talking about spending well over $1 trillion just goes to show how much the discourse has moved leftward since the last time Democrats were in charge. The last time Democrats were in charge, they struggled to pass a stimulus bill that was well under $1 trillion and woefully inadequate to addressing the recession and then proceeded to spend their time worrying about the deficit to the exclusion of the economy. Joe Manchin today is well to the left of where Obama was 10 years ago. We are very lucky to have him. He is the only Democrat who could conceivably win in West Virginia and by all measures Democrats should not even have the Senate now. As they say, don’t look a gift horse in the mouth.

I would really like for BBB to focus on just a few things and do them well. Within the limits that Joe Manchin has imposed, there is still a ton that can be done and made permanent. I would focus on the child tax credit, healthcare and climate change and live to fight another day on everything else. Do a few things well and make them permanent. The alternative is to try to do everything for only a temporary period and most likely poorly designed. When they are in charge again, Republicans will happily let all of it expire and if the programs are poorly designed letting them expire may even be popular. That would be a huge waste of time and effort and nearly as bad as passing nothing.

We have a recent example in the Affordable Care Act (ACA) of how legislation should be designed. The ACA is a permanent program, meaning it has no expiration date. It can only be undone by another legislative act. The one attempt at that failed and Republicans no longer care about it. Conversely, if the ACA had been temporary, Republicans would have let it expire the second they were in charge. If BBB is done as permanent programs, it, too, will become a permanent feature. Republicans could try to repeal it, but I doubt they will in part because of how unpopular it would be and because they do not care about policy anymore. 

All that said, I do not expect BBB to make any real difference for the midterms. Midterms seldom revolve around policy and Democrats were not helped in 2010 by passing the ACA. If anything, passing or attempting to pass major legislation seems to result in an even bigger midterm backlash. I do not want that to happen, but it is okay if it does. As long as BBB passes on a permanent basis and helps people it will all be worth it. It will not solve every single problem there is, but no one piece of legislation ever does that. What it will do is make the country much better off and that is ultimately what politics is about.