Conservative think-tank The Heritage Foundation‘s Project 2025, a controversial collection of policy proposals, has received widespread attention in recent weeks.
The policies are meant to influence a Republican president if the GOP takes the White House in 2025. One chapter of the policy blueprint suggested a complete overhaul of the U.S.’s monetary policy which goes against expert consensus.
Project 2025 on The Fed: Paul Winfree, a member of Donald Trump‘s 2016 transition team, authored a Project 2025 section on the Federal Reserve.
The chapter suggests eliminating the Fed’s dual mandate goal to maintain full employment and stable prices. It proposes limiting the Fed’s lender-of-last-resort function which offers loans to banks near collapse. Finally, it suggests winding down the Federal Reserve's balance sheet and restricting future balance sheet expansions.
Winfree suggests adopting free banking as a means of reform, “effectively abolishing” the Fed. The so-called free-banking era initially lasted from 1837 to 1864. He concedes that the plan would have significant “political hurdles” even though he believes it would be the most effective.
He offers a return to the gold standard — where the dollar is pegged against gold — as an alternative. President Richard Nixon removed the U.S. from the gold standard in 1971 after decades of on-and-off use.
The SPDR Gold Trust GLD is currently near all-time highs.
Top economists are almost uniformly opposed to undermining the Fed’s autonomy or reverting to the gold standard.
According to a 2012 poll by the University of Chicago Booth School, 93% of top economists disagreed or strongly disagreed that a renewal of the gold standard would improve outcomes for the average person. None agreed.
Responding to the survey, Nobel Laureate Richard Thaler joked: “Why tie to gold? why not 1982 Bordeaux?”
Massachusetts Institute of Technology professor Daron Acemoglu said that a “gold standard would have avoided the policy mistakes of the 2000s, but still likely that discretionary policy is useful during recessions.”
A 2013 UChicago poll asked top economists whether a proposed Senate bill to subject the Federal Reserve’s monetary policy and discount window decisions to an audit would improve the Fed’s legitimacy without hurting its decision-making.
81% of respondents who expressed an opinion disagreed or strongly disagreed with such a measure. None agreed.
Austan Goolsbee, now the president of the Federal Reserve Bank of Chicago, expressed strong opposition to a reduction in Fed autonomy.
“Um, have you seen how it has worked in countries with political oversight of monetary policy decisions?”
Trump has reportedly weighed the idea of reducing Fed autonomy if elected to a second term.
Given that abolishing the Fed entirely would be a much more pronounced action than auditing it, the economists would likely oppose such an action if polled today.
According to a YouGov poll, just 18% of Americans approve of the proposal to abolish the Federal Reserve. 38% support a return to the gold standard.
Trump claims to “know nothing” about Project 2025. Many of his allies are linked to the initiative.
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