Trump’s Latest Crackpot

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Donald Trump has named lots of crackpots to high office, but his latest nominee goes for the gold—quite literally. Judy Shelton, whom Trump says he plans to name to the Federal Reserve, wants to return the U.S. dollar to the gold standard.

As we painfully learned from economic history, a gold standard is profoundly deflationary, because it prevents necessary expansion of the money supply in line with economic growth. No serious person advocates it.

Gold had a certain intuitive appeal when inflation was high, but today the problem is that inflation is almost too low. And with a deficit in excess of a trillion dollars (financed by Federal Reserve borrowing), one consequence of a gold standard would be a spike in interest rates.

Shelton is not only a crackpot, but a hypocrite. In line with Trump’s Fed-bashing, she has sucked up to Trump by demanding that the Fed cut rates. When Obama was president, she criticized the Fed for being too permissive. But if you want lower interest rates, the last thing you want is a gold standard.

Shelton, who served on the boards of the Hoover Institution and the Hilton hotel chain, is currently Trump’s U.S. executive director on the European Bank for Reconstruction and Development. She is a favorite of goldbugs. “We make America great again by making America’s money great again,” she wrote in a 2018 paper for the libertarian Cato Institute.

Trump’s last two picks for open seats on the Fed, businessman Herman Cain and conservative pundit Stephen Moore, also goldbugs, went nowhere. Republicans in Congress may slavishly support Trump when it comes to impeachment, but they don’t want to crash the economy. Let’s see whether Shelton fares any better.

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