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Why conservatives & libertarians should not back Trump’s Treasury pick



With the recent confirmation of Betsy DeVos as the Secretary of the Department of Education, people are outraged. Conservatives, however, are quite happy to see someone who is willing to change and shrink the department they are at. The real outrage should be directed at Trump’s Treasury pick, Steve Mnuchin.

Trump surprised many during the campaign when he discussed the Federal Reserve. Not only did he mention auditing the Federal Reserve, but also said that the “Fed is being more political than Hillary Clinton”. While Trump may have been using political talking points to make headlines, he did raise valid points regarding the Federal Reserve. However, Mnuchin has quite different views from Trump on this topic.

Mnuchin has stated two things that should worry proponents of sound money. The first deals with the independence of the Federal Reserve. Unlike Trump, Mnuchin feels that the Fed is already fairly independent and reform is not a priority. Apparently Mnuchin believes that the Federal Reserve can pay remittances to the Treasury and still remain independent. Just last month, the Federal Reserve sent out a press release stating the remittance of $92 billion. As monetary policy affects the profits, and thus remittances, there will be an incentive to have an easy monetary policy, like we have now.

Mnuchin has also stated that Janet Yellen, Chair of the Federal Reserve, has done a “good job”. If Mnuchin believes that continuing to keep interest rates below their natural level is a good job, then we should all be worried about what will happen under his reign. The common argument for keeping interest rates low is that low interest rates spur the economy. Yellen used this argument throughout her tenure as she believed the economy was not doing well enough to raise rates. While raising interest rates may certainly have a short term negative effect, it is nowhere near the long term impacts of misallocating resources through artificially low interest rates.

As interest rates remain low, this sends a signal to businesses to invest. However, what happens when the economy corrects itself? We saw that in 2008 during the financial crisis. As the economy began to contract, businesses were forced to cut down. The first thing that is usually cut is new capital, such as newly acquired machinery in manufacturing firms. This is primarily due to the fact that artificially low interest rates send the signal to businesses to invest in capital, instead of remaining constant or even contracting if necessary.

It is impossible for a group of individuals, headed by Yellen or even Mnuchin, to have the knowledge of the monetary system. As knowledge is local, the only way to guarantee a properly functioning banking and monetary system is through free banking. Without government interference in the banking system, inflation would not occur, as the money supply will only increase if the demand to hold money increases as George Selgin elaborates on in his book, Theory of Free Banking.

John Allison, one of the individuals that Trump was looking at for Treasury Secretary, understood the difficulties with the Federal Reserve. Something that Allison and Mnuchin actually have in common is their opinion towards regulations, such as Dodd-Frank. However, this is where the similarities end. Allison, the favorite for those who desire sound money, wants to eliminate government deposit insurance, such as the FDIC, and have a free banking system.

While Mnuchin is not the worst choice that Trump could have made, it was certainly a poor one considering his other options. Conservatives and Libertarians need to come together to focus on a candidate that understands the danger of the Fed and how it affects every single individual through inflation and the misallocation of resources. Given the comments that Mnuchin has made regarding the Federal Reserve, he is not that person.

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