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Monetary Policy

Biden, Central Planning, and Saule Omarova

(Nerthuz/Getty Images)

The fact that someone went to Moscow State University in the Soviet years should not (obviously) automatically disqualify them from holding a position in a U.S. administration. Nor should the fact that that person received a “Lenin personal academic scholarship,” even if that award will have been evidence of ideological reliability as well as academic excellence. In totalitarian societies, most people go along, whatever they may actually believe.

After all, Yegor Gaidar attended the same university and won the same scholarship.

Yegor Gaidar?

He served in various senior roles in the early Yeltsin years, including as minister of the economy in 1991–92. In the course of a fair-minded obituary after his (premature) death, The Economist noted:

His father was a war correspondent; his grandfather was a famous children’s writer, Arkady Gaidar, who fought on the Bolshevik side in the civil war of 1918-22. In the autumn of 1991 the parallels with that civil war, and the famine that accompanied it, were self-evident. Mr Gaidar threw himself into the midst of the crisis as bravely as his grandfather had done. The task was urgent: to prevent starvation and make the economy work, or risk the consequences.

By the winter of that year Russia had two months’ worth of grain left, and producers were refusing to sell their crops to the state at regulated prices. Shops were empty. There was no money to import food, either: foreign-exchange reserves stood at $27m and the country’s foreign debt, inherited from the Soviet Union, was $72 billion. The only option for Mr Gaidar and his team was to abolish price regulation and allow free trade.

Price liberalisation made the erosion of Russians’ savings visible, and was hugely painful. But it also re-established the market economy for the first time since the 1920s. The reformers’ other task was to break the communist grip on assets as quickly and peacefully as possible. The mass privatisations of the 1990s were far from just or clean. Mr Gaidar was not to blame for the worst abuses, but he took responsibility nonetheless. He knew that reforms should preferably not be carried out without democratic institutions and public support. But he also knew that the alternative was far worse. . .

He was honest, both intellectually and personally. Unlike many of the current Kremlin-dwellers, he did not enrich himself in the 1990s. His office was spartan and stacked with papers; good food (and drink) were his main indulgence. And as an academic, he never compromised his analysis for the sake of political expediency.

Last month, President Biden nominated Saule Omarova as Comptroller of the Currency. As the Wall Street Journal has noted, “Omarova graduated from Moscow State University in 1989 on the Lenin Personal Academic Scholarship.” Sadly, unlike Gaidar, she doesn’t seems have paid too much attention to the implications of the collapse of the Soviet economy, a collapse she witnessed firsthand. Central planning had presented the Soviet economy with disaster after disaster (as a reminder, the Russian economy grew very rapidly in the late Czarist period, which is just one reason why “but industrialization” is not an adequate response to criticism of Soviet economic management). With the Soviet authorities no longer prepared to use the amount of force necessary to preserve their system from the consequences of sustained economic failure, it collapsed.

Lesson: Central planning doesn’t work.

This was a lesson that Omarova appears to have failed to learn.

Well, there’s one exception to that, and perhaps that was the lesson she learned. Central planning works very well for central planners.

The Wall Street Journal:

Some Trump appointees were ridiculed for having supported the elimination of their agencies. Ms. Omarova wants to eliminate the banks she’s being appointed to regulate.

The Cornell University law school professor’s radical ideas might make even Bernie Sanders blush. She graduated from Moscow State University in 1989 on the Lenin Personal Academic Scholarship. Thirty years later, she still believes the Soviet economic system was superior, and that U.S. banking should be remade in the Gosbank’s image.

“Until I came to the US, I couldn’t imagine that things like gender pay gap still existed in today’s world. Say what you will about old USSR, there was no gender pay gap there. Market doesn’t always ‘know best,’” she tweeted in 2019.

After Twitter users criticized her ignorance, she added a caveat: “I never claimed women and men were treated absolutely equally in every facet of Soviet life. But people’s salaries were set (by the state) in a gender-blind manner. And all women got very generous maternity benefits. Both things are still a pipe dream in our society!”

There is certainly a discussion to be had about Soviet maternity benefits (even if the comparison with the U.S. is less straightforward than Omarova seems to imply), but as to Omarova’s point about the gender pay gap (which is not, incidentally, something that her caveat properly addresses), the reality is that while formally women were paid the same as men (in the 1930s, pipe-smoking Joe Stalin boasted that “the Woman Question had been solved”), the reality (so far as it can be deduced from Soviet statistics) was that women were paid roughly two-thirds as much as men. As anyone who, like Omarova, grew up in the USSR knew, the difference between formal and real rights was . . . substantial.

Back to the WSJ:

Ms. Omarova thinks asset prices, pay scales, capital and credit should be dictated by the federal government. In two papers, she has advocated expanding the Federal Reserve’s mandate to include the price levels of “systemically important financial assets” as well as worker wages. As they like to say at the modern university, from each according to her ability to each according to her needs.

In a recent paper “The People’s Ledger,” she proposed that the Federal Reserve take over consumer bank deposits, “effectively ‘end banking,’ as we know it,” and become “the ultimate public platform for generating, modulating, and allocating financial resources in a modern economy.” She’d also like the U.S. to create a central bank digital currency—as Venezuela and China are doing—to “redesign our financial system & turn Fed’s balance sheet into a true ‘People’s Ledger,’” she tweeted this summer. What could possibly go wrong?

Ms. Omarova believes capital and credit should be directed by an unaccountable bureaucracy and intelligentsia. She has recommended a “National Investment Authority,” with members overseen by an advisory board of academics, to finance a “big and bold” climate agenda. Sounds like the green infrastructure bank the Senate rejected.

She’d also like a politically and structurally independent “Public Interest Council” of “highly paid” academics with broad subpoena power to supervise financial regulatory agencies, including the Fed. The Council, she explained, would not be subject to the “constraints and requirements of the administrative process.” Ivy League professors know best.

As comptroller, Ms. Omarova would supervise some 1,200 financial institutions. While she couldn’t enact her People’s Agenda without legislation, she would have sweeping powers to punish banks that don’t follow her diktats. Recall how financial regulators during the Obama Presidency pressured banks to cut off credit to pay-day lenders.

Our sources say the President nominated Ms. Omarova over the objections of Treasury Secretary Janet Yellen, to whom the comptroller reports . . .

History shows that ideas of this sort are a prescription for economic disaster, but they are also about something else, which, is power, and in Omarova’s case, power for her class: something that Lenin would have appreciated, and, in today’s world, almost certainly would have supported.

More broadly, she appears to want the rewiring of much of our economy in a technocratic (that is to say, post-democratic) way. It is a recipe for economic catastrophe, but those who control the sort of system that would emerge as a result of this rewiring will do very well indeed (see the USSR for details). Notice the role that Omarova allocates for academics, some of whom, at least, should, she reportedly thinks, be “highly paid,” a telling proviso.

The same, by the way, will also be true of the Green New Deal.

Scrolling on down through The Economist’s obituary of Gaidar, who, as a former member of the Soviet aristocracy, certainly understood power, I read this:

One of Russia’s biggest problems, as he saw it, was the growing accumulation of wealth and power by bureaucrats and their friends in the name of a “strong state”. People who argued for such a state, he wrote, “have only one purpose—to preserve the status quo…A self-serving state destroys society, oppresses it and in the end destroys itself . . . ”

Food for thought.

This nomination should be rejected.

Something to Consider

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