There Is No Such Thing As Conservative Monetary Policy
“Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”
--J.M. Keynes, General Theory
The Year Ahead 2018
The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.
"Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.”
--Ayn Rand, Atlas Shrugged
I am a proud member of the party of free enterprise, individual liberty, and sound economic policy. The GOP stands against all of the little tendrils of neomarxism that have found their way into the Party of the People. We stand for a balanced budget, limited government, and thrift. We want America to prosper, and for a prosperity shared by all, as opposed to the growth-destroying redistributionism of the Left. We have smart economists who can patiently explain what is necessary create the conditions for growth. We believe that we are the party of growth.
However, my party also has a dark side (yes, imperialism, but in addition to that): a sound dollar. Who could be opposed to that? We don’t want the US to become Argentina or Zimbabwe do we? We don’t want to live in a country which periodically slices the zeros off of its currency, and where you to carry a calculator to figure out what things cost in “real money”, do we? No, we don’t. We want a “sound currency”.
And so, the House GOP deputy whip, Kevin Brady, has introduced the “Sound Dollar Act of 2012”. Boy, who could be against that besides Barney Frank?
The bill begins with the “finding” that:
“Monetary policy can only affect the level of employment in the short term because nonmonetary factors determine the level of employment in the long term...Therefore, to maximize long-term economic growth and achieve the highest sustainable level of real output and employment, price stability should be the objective of monetary policy.”
The bill then proceeds to eliminate full employment from the Fed’s mandate: “Section 2A of the Federal Reserve Act is amended(1) by striking ‘‘goals of maximum employment, stable prices, and moderate long-term interest rates’ and inserting ‘‘goal of long-term price stability’’.”
To be honest, as a conservative/libertarian, I don’t fully understand why the right of my party is opposed to the full employment mandate. Those of us in the “market monetarist” camp tend to be pretty conservative. We believe that prosperity leads to sound policy, while depression leads to leftist nostrums like green jobs and ObamaCare. But the “hard money” guys somehow see the Fed as an ally of the Left. Romney and Ryan are criticizing QE3 as “another bailout” and a short-term “sugar rush” to re-elect Obama.
Another Republican statement (Rep. Raul Labrador) on this subject: “It is going to sow some growth in the economy, and the Obama administration is going to claim credit.” Labrador is objecting to QE3 because it might help the economy.
Right now, the small but influential “market monetarist” community is happily celebrating last week’s victory, when Bernanke finally agreed to acknowledge the Fed's full employment mandate and--hold your hat--to target employment as an explicit objective of Fed policy. The market monetarist community feels that there has been a major intellectual breakthrough in D.C., and they (see: Wolfgang Munchau at the FT) are seeking to export this breakthrough to the eurozone, where it is so desperately needed.
These celebrations may prove premature. I recently received an email from the Romney-Ryan team, which said:
“This past week, the Federal Reserve announced it would print $40 billion every month to prop up this administration's jobless recovery -- that's money we can't afford for jobs we will never see.”
Those words are not music to the ears of market monetarists. The GOP seems to be doubling down on sound money.
The market monetarist school may have a short life in power if it is unable to convince the Congress and the next president that full employment is not a left/right issue, and that good growth policies have no ideology. Appropriate monetary policies are not only a moral imperative (if one sees unemployment as a bad thing), but also a fiscal imperative if we are ever to stabilize our debt-to-GDP ratio. It is the only way that we can have GDP outrun our debt mountain.
The House GOP are currently slaves not to a defunct economist, but to a defunct philosopher and novelist, Ms. Alisa Rosenbaum (Ayn Rand). It is unfortunate that Ms. Rand harbored opinions concerning monetary policy. I am sure that Ms. Rand’s experiences in the early days of the Soviet Union were enlightening, but they gave her the wrong idea about inflation.