March 7, 2013


End the GOP Attacks on the Fed : Republicans rip Bernanke, but what would Uncle Miltie do? (James Pethokoukis, 3/04/13, National Review)

Bernanke effortlessly deflected Corker's zingers. He pointed out, for instance, that inflation has been lower during his tenure than in that of any other postwar Fed boss (actually since the early 1930s). But Bernanke's responses were of secondary importance once it became clear that Corker's critique was genuine. Which isn't surprising, really. Republicans are locked in a collective Jedi mind meld when it comes to the Bernanke Fed. They see its bond-buying, or quantitative-easing, strategy as a reckless monetary experiment that risks dangerous asset bubbles and rising inflation for little benefit. In response, they are pushing legislation that would narrow the Fed's dual mandate, which is to promote both maximum employment and stable prices; GOP critics contend that the Fed should instead focus primarily on keeping prices stable.

And they are making this argument while inflation is at less than 2 percent, growth at less than 2 percent, and unemployment at nearly 8 percent. Really? Maybe Republican policymakers have spent too much time listening to inflationista gold-fund hawkers and reading anonymous Zero Hedge posts rather than, say, brushing up on the writings of Milton Friedman. Right-of-center policymakers have forgotten the full scope of the Nobel laureate's economic legacy. Yes, Friedman was a fierce and eloquent advocate of economic freedom. But Friedman was also one of the world's greatest scholars of monetary policy, whose magisterial A Monetary History of the United States, 1867-1960, co-authored with Anna Schwartz, pinned the Great Depression on the failings of the Fed.

If Friedman had the same intellectual standing with Republicans today as Austrian economist Friedrich Hayek does, the GOP might at least be aware of the possibility that (1) it was a tightening of monetary policy in 2008 that exploded a modest downturn into the Great Recession, (2) today's low interest rates signal tight money, not loose, and (3) bond buying is exactly the right policy when interest rates are near zero, inflation quiescent, and the economy moribund.
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Posted by at March 7, 2013 9:39 PM

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