By Mike Moebs
Who was the best quarterback of the economy?
Since 1914 there have been 15 Federal Reserve chairs. The most fundamental way to measure the performance of the Fed quarterbacks in the past 108 years is to gauge if money supply advanced in line with the normal rate of monetary growth.
In 1946 Congress gave the Federal Reserve the dual mandate to control inflation and maximize employment to promote economic stability. However, this is like rating a teacher based on the number of A’s awarded and how many students attended class every day. Judging a teacher by these quotas is not a good measure of their performance or impact on their students’ learning. What do you think of a teacher who gives out all A’s?
Moebs $ervices measured the median growth rate of money supply over 432 calendar quarters and assessed how closely each of the 15 chairs managed the supply of money during their term to the normal growth rate. Since 1914 the median rate of growth is 6.8% for monetary measures M1+M2+M3. Current Fed Chair Jerome Powell is excluded because all quarterbacks must finish the game before being judged on their performance.
Some may ask why not rank results by price and not just monetary supply? Monetary price is like an accelerator on a car – one can go faster, slower, or nowhere if you keep your foot off the gas pedal. The true test of a car is how many miles the vehicle will travel on a full tank of gas under normal driving conditions.
The Winning Fed Chair
And the gold bar goes to: Marriner S. Eccles, who was the Federal Reserve chair from 1934 to 1948. Eccles was a banker and businessman, owning lumber and sugar companies for 30 years before being appointed chairman of the Federal Reserve. A Mormon by faith, Eccles was taught as a young child to work together with others to solve problems. Eccles demonstrated this guiding principle in his career, since he was the only Republican to hold a key position in the Democrat Franklin Roosevelt’s administration.
Eccles spearheaded reforms such as federal deficit spending in times of economic hardship, establishment of the minimum wage, creation of the FDIC, and greater control by the Federal Reserve over the banking payment system.
Eccles had the highest increase in money stock, as well as two large decreases in money stock, but maintained growth of the monetary aggregates closest to the median rate of 6.8% of all Fed chairs. His 14-year term as Fed Chair was during the peak of the Great Depression and World War II, which produced congressional price controls and a massive White House bond effort for America to finance the war.
What We’ve Learned
The Federal Reserve chairman is perhaps the most important economic leader of the nation, as a quarterback is to a football team. Football has 11 team players on offense and defense, as well as a coach; monetary policy and execution needs the same.
Private sector experience, such as that Eccles faced, is important to be an effective and successful Fed chair. The background comparison was when all three Fed chairs had almost no private sector experience, especially from 1970 to 1987. Massive swings in money stock are sometimes needed to regain economic stability and direction, especially in hard economic times. Interestingly, the most successful Fed chairs did not have to deal with the dual mandate of Congress – has the dual mandate outlived its usefulness?
The economic development and direction of the nation needs football-like teamwork and coordination of numerous financial elements of a complex monetary structure to function properly
Mike Moebs is president and chief economist with Moebs $ervices in Lake Forest, Ill. For info: www.moebs.com.
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