Elizabeth Warren Is Just Another Tedious Demagogue
She may pretend to be a warrior for the poor and middle-class, but voters can see that she’s really just looking out for her own political career.
Over the past few weeks, Senator Elizabeth Warren has been waging political warfare against the Chair of the Federal Reserve, Jerome Powell. In committee hearings, on Twitter, and on cable tv, the senator has been making the case that, under Powell’s leadership, the Fed has failed to responsibly manage the country’s monetary policy. And while she’s avoided using these exact words, Warren is effectively calling on Biden to fire him.
At first glance, this doesn’t sound like that big of a deal. But with a bit more context, it becomes clear why Warren’s seemingly benign behavior is really a form of political demagoguery meant to further her own career at the expense of the nation’s well-being.
To understand why, you first need a bit of background on what the Federal Reserve does and why it’s supposed to be independent. (You can skip the next two paragraphs if you already know these things.)
What the Fed Does
The Federal Reserve (Fed for short) is the country’s central bank, and it’s responsible for setting the country’s monetary policy. This basically means it manages the supply and value of the U.S. dollar. Congress has given the Fed what’s called the “dual mandate” to pursue the economic goals of price stability and maximum employment, two objectives that are often in tension and can be a bit like balancing a see-saw. The main item in the Fed’s toolkit is setting interest rates. When it raises rates, the Fed makes borrowing money more expensive, which means that people have less money to spend, which slows inflation. A side effect of this is that the economy also slows, which can lead to higher unemployment and, potentially, a recession. The opposite is also true: lowering interest rates makes borrowing money cheaper, which gives the economy a boost, but can also cause prices to rise.
Why the Fed Is Supposed to Be Independent
The Fed’s actions are not subject to congressional or presidential approval, meaning it can make hugely important decisions (like raising or lowering interest rates) without the influence of politicians. The purpose of this independence is to protect and insulate the Fed from politicians who might want to manipulate the economy for their short-term electoral interests rather than the long-term health of the national economy. For example, it’s not hard to imagine a president wanting to heat up the economy right before their re-election in order to boost their chances of winning a second term, even if it’ll have destructive consequences somewhere down the road. The big exception to this independence is that the Fed chair and its governors are appointed by the president and confirmed by the Senate.
Anyways, in 2021, following pandemic-era government spending and pent-up consumer demand, inflation set in. It took the Fed a while to respond, but by the start of 2022, it began to raise interest rates, bringing them from around 0% to about 5% today. In a survey of 44 professional macroeconomists, the clear majority said that the Fed’s raises in 2022 were either “too little too late and insufficient to help keep inflation under control” (49%) or “just about right to keep inflation under control without severely slowing down the economy” (39%). Only a tiny portion (5%) said the raises were “more than needed to contain inflation, and risks putting the recovery at risk and causing a recession.”
Warren, however, has decided that she knows better than the experts. Rather than acknowledge the existence of real-life tradeoffs, she’s decided to inhabit a fantasyland where it’s possible to slow inflation without raising interest rates or experiencing any economic side effects. On social media, for instance, Warren has been grossly mischaracterizing what interest rate hikes are meant to do by posting things like this:
In press releases, she’s been refuting almost every professional economist by saying that “the Fed has no control over the main drivers of rising prices.”
And in committee hearings, she’s been grandstanding, insisting that Powell answer unduly one-dimensional questions like, “If you could speak directly to the two million hardworking people who have decent jobs today who you’re planning to get fired over the next year, what would you say to them?”
All this is a ludicrously simplistic way to understand the Fed’s decision to raise interest rates. But by ignoring real-life tradeoffs and presenting herself as a populist hero facing off against the evil bankers, Warren stands to benefit for two reasons.
First, because a certain section of the Democratic Party loves this behavior. Any time a clip of Warren goes viral — whether she’s butting heads with Powell in a committee hearing or railing against Fed policy on MSNBC — she endears herself to progressives, builds out her donor list, and raises her profile for a potential future presidential campaign. In short, Warren is just another politician trying to go viral on YouTube and build her political brand.
Second, because her tantrums may actually influence Fed policy. Lower interest rates would likely lead to a hot economy and low unemployment, a dynamic that would return electoral dividends in 2024. That would be great for President Biden and the Democratic Party, who could claim responsibility for the strong economy. And while inflation might cause a bit of voter discontent, it would be less politically harmful than high unemployment. The problem with this, of course, is that a short-term economic boom is not necessarily the best thing for the economy in the long term.
Fortunately, voters do not seem to be buying what Warren is selling. In polls, Warren is extremely unpopular, whereas Jerome Powell and the Federal Reserve are either moderately popular or unknown.
The most frustrating part of all this is that Warren knows better. She’s a Harvard-educated lawyer with extensive experience in financial regulation and economic oversight. The sad truth is that Warren isn’t dumb; she’s just a demagogue. And, to be honest, the populist warrior routine is getting a bit tedious. We’ve had Trump; we’ve had Bernie, and now we’re getting the third-rate knock-offs, the politicians who saw that populism was in vogue and belatedly got on board.
Warren is not the first politician to treat the Fed as a political punching bag. Senator Sherrod Brown, the chairman of the Committee on Banking, Housing, and Urban Affairs, has also been critical of the Fed. But while Brown’s behavior is undoubtedly inappropriate, he hasn’t gone after Powell with the same vitriol or approached the topic with the same bad faith that Warren has.
Ironically, the only politician who has done this is also Warren’s greatest political foil. When he was president, Donald Trump let loose on the Fed and its chairman, attacking them publicly in nearly 100 tweets, in public speeches, and in press briefings. Democrats were appropriately critical of Trump for threatening the independence of the Fed and violating an important political norm. Then-presidential candidate Joe Biden called Trump’s attacks a “big mistake” and “his way of abusing power.” Similarly, then-House Majority Leader Steny Hoyer said that Trump’s comments had made him “very concerned about the independence of the Federal Reserve generally and the independence of its members.”
On that note, Biden actually deserves credit for his consistency on this point. Even as the Fed continued to raise rates under his presidency, Biden has avoided criticizing the institution. Last year, for instance, Biden said that his “plan to address inflation starts with the simple proposition: respect the Fed, respect the Fed’s independence, which I have done and will continue to do.” And just this week, ahead of Wednesday’s interest rate hike, Biden reiterated his ongoing confidence in Powell. Other politicians across the political spectrum who have also been out front defending the Fed’s independence deserve similar recognition.
Warren, for her part, deserves the opposite. Democrats were quick to condemn Trump’s demagoguery, and they should do the same for Warren. The only differences between the former president and the current senator are that she is more strategic, more eloquent, and more popular among upwardly mobile Democrats.
Ultimately, Warren has exposed herself as just another politician doing whatever it takes to get more power. She may pretend to be a defender of the poor and middle-class, but she’s really just looking out for her own political career. Someone that duplicitous should never get anywhere near the White House. If she ever runs for president again, I hope that Democratic voters will be wise enough to respond to her candidacy with a hearty “no thank you,” just as they did last time.
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I am not sure that the FED and Warren have a complete answer to the financial issues caused by the tools at hand. The Fed certainly deserves some of the credit for the current banking issues and neither is factoring in these overall costs to the the debt. Also, this current inflation cycle is in part a result of large corporations seizing the opportunity to raise prices and maintain the wealth disparity that continues to grow.