John C. Williams will be taking his talents to New York, as the San Francisco Fed President has been announced as the successor to William Dudley. The selection, made by bank representatives within the New York Fed, is the latest example of the Federal Reserve maintaining the status quo.
Williams is a career academic who collected his first Fed paycheck after completing his PhD in 1994. As a current FOMC member, Williams has been a reliable vote in support of the moderate interest rate increases we’ve seen over the last few years.
With Republicans in DC increasingly interested in Fed reform, Williams’s history offers a mixed bag. He has certainly flirted with proposals such as NGDP targeting, but he has also been a vocal supporter of Fed flexibility in a time of crisis. These views are reflected in his academic work, such as a 1999 Fed paper which touted that simple monetary policy rules may “very effective at minimizing the fluctuations in inflation, output, and interest rates,” they must also take into the complexity of the real world. In other words, monetary rules are great until they aren’t.
Williams is more reliable in defense of the Fed’s most important - and controversial - policy tool, excess on interest reserves. In fact, as Patrick Barron noted in 2011, Williams believes IOER and other Fed actions represent a “Brave New World” in monetary policy:
One wonders if Mr. Williams ever read Aldous Huxley’s chilling book warning the world of the threat to individual freedom by a tyrannical one-world state. If he had I doubt that he would have included “Brave New World” in the title of his speech.
But perhaps he selected this title on purpose! For Mr. Williams’s speech was an unvarnished plea to recruit academics as co-conspirators to spread as economic truth the Fed’s latest make-it-up-as-we-go-along, and increasingly panicked, monetary interventions masquerading as well-thought-out policy. The speech was nothing less than an admission that the Fed’s monetary theories have failed, that it is experimenting with new ones, and that it wants academia to endorse whatever its latest policy experiments happen to be and incorporate them into college curricula. Here are his very words:
We depend upon educators like you to explain how the Fed works and how our policies affect the economy. We all benefit when the public understands what we do and why, so we are very grateful for the work you do.
Mr. Williams launched into a rather disjointed defense of the reasons that the Fed had to employ new monetary policy tools. (He proudly declared that, of the 12 policy tools on the Fed’s own website, 9 of them did not exist four years ago.) I bet you he didn’t realize that one reason monetary policy had to change was because of advances in the payment system. It seems that our ability to use debit and credit cards for purchasing goods and services has made traditional monetary aggregates obsolete. Again, in his own words:
How do 1950s theories of cash and checks apply in a world in which you and I can instantly take out a loan of several thousand dollars with the swipe of a card at the cash register?
It is obvious that Mr. Williams has never read Ludwig von Mises’s The Theory of Money and Credit.
Unfortunately the most vocal criticism of Williams’s selection will not come from his embrace of Bernanke-Yellen’s radical monetary policy, but rather the fact he does not fit the push for “diversity” that Elizabeth Warren and other progressives desire. Of course, as Jonathan Newman noted in 2016, the policy aim of the push for diversity is keeping interest rates low - seen by misguided progressives as a benefit to the poor. The tragic irony is that, of course, those are precisely the ones hurt the most.
