Ron Paul Will Not be Federal Reserve Chairman
President Trump and Ron Paul have completely opposing views when it comes to monetary policy and central planning of interest rates
Elon Musk posted on X that it would be a “great idea” to have Ron Paul, former U.S. Representative and three-time presidential candidate, take the role of chairman of the Federal Reserve currently held by Jerome Powell.
Ron Paul has been the biggest critic of the Federal Reserve and central banking in modern American history, making the Federal Reserve a political issue for the first time in at least a generation during his 2008 presidential campaign. He is an advocate of abolishing the Federal Reserve, and any kind of central banking, and returning to a commodity-backed monetary system such as the gold standard. He even wrote a book in 2009 titled End The Fed where he makes the case for getting rid of the Federal Reserve.
In his book, Paul writes:
Artificially low interest rates are achieved by inflating the money supply, and they penalize the thrifty and cheat those who save. They promote consumption and borrowing over savings and investing. Manipulating interest rates is an immoral act. It’s economically destructive.
The market rate of interest provides crucial information for the smooth operation of the economy. A central bank setting interest rates is price-fixing and is a form of central economic planning. Price-fixing is a tool of socialism and destroys production. Central bankers, politicians, and bureaucrats can’t know what the proper rate should be. They lack the knowledge and are deceived by their own aggrandizement.
He explains, in the tradition of the Austrian school of economics, that by keeping interest rates artificially low, price-fixing as he says here, the Federal Reserve creates an environment where investors engage in “malinvestment” because they believe there is actually more wealth being saved in the economy than there really is. In a truly free market, interest rates would be tied to the amount of savings in the economy. When savings are high, interest rates would go down, and when savings are low, interest rates would rise. When interest rates are kept artificially low it leads to the malinvestment and creates a bubble which must inevitably burst causing an economic downturn because the economy does not actually have the savings to back up the (mal)investments that have been made. As Ron Paul states in his book, “Prosperity can never be achieved by cheap credit. If that were so, no one would have to work for a living.” In other words, real wealth cannot be created out of nothing.
On the opposite end of the spectrum, is President Donald Trump, who has described himself as a low interest rate guy and recently demanded that rates be lowered. From Reuters:
U.S. President Donald Trump on Thursday said he wants the Federal Reserve to cut interest rates at a time the central bank has hit pause for an uncertain duration, arguing he understands monetary policy better than those charged with setting it.
"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump told the World Economic Forum on Thursday in Davos, Switzerland.
At a White House event following those comments, Trump said, "I think I know interest rates much better than they do, and I think I know it certainly much better than the one who's primarily in charge of making that decision," in an apparent reference to Federal Reserve Chairman Jerome Powell, who Trump appointed as Fed leader in his first stint as president.
The chairman of the Federal Reserve is appointed by the President, so why would Donald Trump appoint Ron Paul who would not only refuse to lower interest rates but would probably try to raise them to levels that someone like Jerome Powell would never consider in his wildest nightmares? President Trump is highly critical of Chairman Powell and yet Powell is much more in line with Trump’s wishes for Fed policy than Ron Paul would ever be. Ron Paul is probably the very last person that Donald Trump would want to have in the role of chairman of the Federal Reserve.
There is also, of course, the matter of Ron Paul being 89 years old, and while he certainly doesn’t have the cognitive issues of someone like Joe Biden he has had I believe two knee replacements and was open about how much he hated traveling even during his 2012 presidential campaign. There are plenty of other Austrian school economists who could do the job as well as Ron Paul, however, but they would never be chosen by Trump for the same reasons that Ron Paul himself would never be chosen by Trump.
So while it’s nice for Elon Musk to endorse Ron Paul in such a way to those of us who have long supported Ron Paul, it is never going to happen and we should not have any illusions to the contrary. It would certainly be enough for Musk to consult with Paul in matters of cutting government waste with his Department of Government Efficiency, but Ron Paul, or any Austrian school economist, as Fed chairman is, sadly, a pipe dream.