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Sen. Kennedy’s big fiscal hawk FAIL

Awkward hearing moment with Fed Chair Powell

Senator John Kennedy (R-LA) had an embarrassing exchange with Federal Reserve Chairman Jerome Powell, and it says everything about the conveniently resurgent rhetoric of fiscal conservatism.

Republicans have suddenly been resharpening their talons as fiscal hawks, as they usually do upon shifts in White House control. And Kennedy’s moment with Powell was the biggest fiscal hawk fail yet (until another one comes along, say, when Congress debates passage of the $1.9T stimulus package soon).

Kennedy attempted to press Powell on America’s deficit, during a Senate Banking Committee hearing Tuesday. The hearing was supposed to serve as Powell’s “Semiannual Monetary Policy Report to the Congress.” As usually occurs when Powell testifies, Senators veered wildly off Powell’s mandate — monetary policy— to focus on what they hope is jucier political stuff: fiscal policy (whether, when, and how much to spend).

Powell ended up taking Kennedy to school — almost literally. Watch the full exchange here:

The Fed Chair resorted to phrases such as: “When you and I studied economics a million years ago” and “It’s something we have to un-learn,” in response to the senator’s attempts to portray federal support for the economy as a dark cloud hanging over economic growth.

Powell doesn’t discount the importance of addressing the deficit in the future, of course, once the nation has recovered from the pandemic. “We will need to get back on a sustainable fiscal path” in the future, Powell allowed.

And then, something remarkable occurred. Powell explained — three times — the basic scenario of recovery from the current pandemic-induced expenditure.

And Kennedy acted as if none of it sunk in.

  1. “The way that has worked, when it’s successful, is just get the economy growing faster than the debt,” said Powell.
  2. “In the fullness of time, we will need to right-size our budget, so that the economy is growing faster, in nominal terms, than the debt.
  3. “We will need to return to this issue, but I wouldn’t return to it now. The way to get after this issue is to get a situation where the economy is growing faster, in nominal terms, than the debt is.

Run that by me again?

Kennedy bafflingly pressed on with a question indicating he’d absorbed Powell’s thrice-repeated explanation about as well as, say, a sheet of cling wrap might mop up kitchen spills:

“What if that becomes the case, but, your spending is also growing faster than your economy?”

Let us pause to savor the dizzying circular inanity of Kennedy’s question. He asked if Powell’s scenario “becomes the case,” i.e. the economy is outpacing your debt, “but your spending is also growing faster than your economy”…which is…the exact opposite of…oh, you get it.

“Well, no, that is the deficit,” Powell instantly replied, recognizing the need to reinforce what he’d just repeatedly told Kennedy. “The deficit is the difference between intake and spending. It is the net of those two.”

“Let me stop you,” Kennedy interrupted helpfully (to himself, that is), only to then unhelpfully restir the same pot.

“M2, the money supply, is up about $4T over the past year, or $6T — $4T, $6T, what’s a few trillion? It’s up 26%, the highest amount since 1943. What does that tell ya?”

“Well, when you and I studied economics a million years ago,” Powell instructed his pupil, “M2 and monetary aggregagtes generally seemed to have a relationship to economic growth. Right now, I would say the growth of M2, which is quite substantial, doesn’t really have important implications for the economic outlook. M2 was removed some years ago from the standard list of leading indicators…it just no longer holds…it’s something we have to un-learn, I guess.”

Reminder: Kennedy enthusiastically supported passage of the monumentally-expensive Trump tax bill in 2017. Because of course he did.

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Joel Lawson

Joel Lawson

DC-based public affairs consultant. Fmr: Capitol Hill, Ctr for Partnership Studies; Caring Economy Campaign; Fmr Chair, GenderAction. about.me/joellawson