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Friday, November 13, 2015

Paul Krugman: Republicans’ Lust for Gold

Why have Republican candidates for president embraced hard money policies?:

Republicans’ Lust for Gold, by Paul Krugman, Commentary, NY Times: It’s not too hard to understand why everyone seeking the Republican presidential nomination is proposing huge tax cuts for the rich. Just follow the money...
But what we saw in Tuesday’s presidential debate was something relatively new on the policy front: an increasingly unified Republican demand for hard-money policies, even in a depressed economy. Ted Cruz demands a return to the gold standard. Jeb Bush ... is open to the idea. Marco Rubio wants the Fed to focus solely on price stability, and stop worrying about unemployment. Donald Trump and Ben Carson see a pro-Obama conspiracy behind the Federal Reserve’s low-interest rate policy.
And let’s not forget that Paul Ryan ... has spent years berating the Fed for policies that, he insisted, would “debase” the dollar and lead to high inflation. Oh, and he has flirted with Carson/Trump-style conspiracy theories, too...
As I said, this hard-money orthodoxy is relatively new. ... George W. Bush’s economists praised the “aggressive monetary policy”... And Mr. Bush appointed Ben Bernanke... But now it’s hard money all the way. ...
This turn wasn’t driven by experience. The new Republican monetary orthodoxy has already failed the reality test with flying colors... But years of predictive failure haven’t stopped the orthodoxy from tightening its grip on the party. What’s going on?
My main answer would be that the Friedman compromise — trash-talking government activism in general, but asserting that monetary policy is different — has proved politically unsustainable. You can’t, in the long run, keep telling your base that government bureaucrats are invariably incompetent, evil or both, then say that the Fed, which is ... basically a government agency run by bureaucrats, should be left free to print money as it sees fit. ...
The interesting question is what will happen to monetary policy if a Republican wins next year’s election. As best as I can tell, most economists believe that it’s all talk, that once in the White House someone like Mr. Rubio or even Mr. Cruz would return to Bush-style monetary pragmatism. Financial markets seem to believe the same. At any rate, there’s no sign in current asset prices that investors see a significant chance of the catastrophe that would follow a return to gold.
But I wouldn’t be so sure. True, a new president who looked at the evidence and listened to the experts wouldn’t go down that path. But evidence and expertise have a well-known liberal bias.

    Posted by on Friday, November 13, 2015 at 12:33 AM in Economics, Monetary Policy, Politics | Permalink  Comments (73)


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