Monetary policy probably won’t be a major issue in the 2016 campaign, but it should be. It is, after all, extremely important, and the Republican base and many leading politicians have strong views about the Federal Reserve and its conduct. And the eventual presidential nominee will surely have to endorse the party line.
So it matters that the emerging G.O.P. consensus on money is crazy — full-on conspiracy-theory crazy.
Right now, the most obvious manifestation of money madness is Senator Rand Paul’s “Audit the Fed” campaign. Mr. Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he’s been saying that since 2009, and it keeps not happening. So now he has a new line: The Fed is an overleveraged bank, just as Lehman Brothers was, and could experience a disastrous collapse of confidence any day now.
This story is wrong on so many levels that reporters are having a hard time keeping up, but let’s simply note that the Fed’s “liabilities” consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can’t fall victim to a bank run. But is Mr. Paul being ostracized for his views? Not at all.
Moreover, while Mr. Paul may currently be the poster child for off-the-wall monetary views, he’s far from alone. A lot has been written about the 2010 open letter from leading Republicans to Ben Bernanke, then the Fed chairman, demanding that he cease efforts to support the economy, warning that such efforts would lead to inflation and “currency debasement.” Less has been written about the simultaneous turn of seemingly respectable figures to conspiracy theories.
There was, for example, the 2010 op-ed article by Representative Paul Ryan, who remains the G.O.P.’s de facto intellectual leader, and John Taylor, the party’s favorite monetary economist. Fed policy, they declared, “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.” That statement looks an awful lot like a claim that Mr. Bernanke and colleagues were betraying their trust in order to help out the Obama administration — a claim for which there is no evidence whatsoever.
Oh, and suppose you believe that the Fed’s actions did help avert what would otherwise have been a fiscal crisis. This is supposed to be a bad thing?
You may think that at least some of the current presidential aspirants are staying well clear of the fever swamps, but don’t be so sure. Jeb Bush appears to be getting his economic agenda, such as it is, from the George W. Bush Institute’s 4% Growth Project. And the head of that project, Amity Shlaes, is a prominent “inflation truther,” someone who claims that the government is greatly understating the true rate of inflation.
So monetary crazy is pervasive in today’s G.O.P. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems.
You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. You could say that to the free-market true believer, to know the price of everything is also to know the value of everything.
Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. … Paper is a check drawn by legal looters.”
Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.
So as I said, monetary policy should be an issue in 2016. Because there’s a pretty good chance that someone who either gets his monetary economics from Ayn Rand, or at any rate feels the need to defer to such views, will get to appoint the next head of the Federal Reserve.
By: Paul Krugman, Op-Ed Contributor, The New York Times, February 13, 2015
“The Insurgent Strategy”: It’s Going To Be Hard To Convince Voters Of Republicans’ Compassion On The Economy
In recent months, Republicans have been searching for ways to talk about the economy that go beyond their traditional supply-side focus on growth, which says that if we do a few key things (cut taxes, reduce regulations), the economy will grow and everyone will benefit. Since the conversation about economics has shifted to things like inequality and wage stagnation, potential 2016 candidates want to show that they’re concerned about more than growth; this need is particularly acute in the wake of 2012, when Mitt Romney was caricatured as a ruthless plutocrat crushing the dreams of regular people in order to amass his vast fortune, all while heaping contempt on the “47 percent.”
Many Republicans believe that this entirely explains Romney’s loss, and if they can convince voters that they understand their struggles and have ideas to help them, then victory in 2016 is possible. But that would require them to counter some powerful and deeply ingrained stereotypes about their party. As Brendan Nyhan explains today, there is some political science research into the question of whether it can be done, under the heading of “issue ownership” and “issue trespassing”:
The Republican focus on inequality could address this vulnerability by helping the party look more caring, reducing the G.O.P.’s “damaging reputation for caring only about the economic interests of the rich,” as National Review‘s Ramesh Ponnuru put it.
But there is risk in issue-trespassing of the sort that the Republicans are attempting. One political science study found that the strategy is rarely successful and that voters tend to rely on party stereotypes instead — a conclusion that is reinforced by miscues like the infamous Dukakis tank ride. Democrats are already likening Jeb Bush to Mr. Romney in an attempt to buttress the stereotype of the G.O.P. as the party of the rich.
And even if the move to address inequality lessens Republican image problems, it will be only a stopgap. Assuming the economy continues to improve, Republicans will be forced to pursue what Lynn Vavreck, an Upshot contributor, calls an “insurgent” strategy in 2016, trying to focus the election on another issue in which its presidential candidate has an inherent advantage.
Unfortunately, good insurgent issues are hard to find. Inequality doesn’t look like a winner for Republicans in this election. That’s why Mr. Bush, like Mr. Dukakis, has struck some analysts as sounding like a technocrat — he can’t run on the economy and doesn’t have a good alternative issue or trait to emphasize (unlike his brother George, who successfully ran as the Not Clinton candidate in 2000).
The Dukakis example is an interesting and revealing one. In 1988, at the end of a huge military build-up, Dukakis tried to argue that the question wasn’t whether our military was big, but whether we were making smart decisions about what weapons we purchased and what we did with them. Then somebody thought it would be good for him to take a ride in a tank, just to show that he liked big things that go boom just as much as any Republican, ignoring the fact that it would violate the most important rule of presidential campaigning, which is “No hats.” Your candidate should never, ever put on a hat. The Republicans made an ad mocking him for riding in a tank, and suddenly the discussion on defense was back on the strong/weak axis, not on the smart/dumb axis Dukakis wanted.
In 2016, all it’s going to take is one thing to undo months of careful attempts by the Republican candidate to show he’s compassionate and understands people’s economic needs. Maybe it’ll be an infelicitous remark the candidate makes, or it might even be something someone else says. But the Democrats will be waiting to show the voters that the nominee is just like every other Republican, and when it happens they’ll be on it like white on rice.
By: Paul Waldman, Contributing Editor, The American Prospect; Contributor, The Plum, Line, The Washington Post, February 13, 2015
“The Country Paid Heavily For The Risks He Took”: It’s Not Too Soon To Judge George W. Bush’s Presidency On Key Issues
In the six years since he left the White House, President George W. Bush has often claimed that it is too early for historical judgments about his presidency. “It’s too soon to say how many of my decisions will turn out,” he wrote in Decision Points, his presidential memoir.
In this, Bush was indulging in what we will call the Truman Consolation. President Harry S. Truman was deeply unpopular during most of his time in the White House and in the years immediately afterward. Only decades later did historians begin to rate his presidency highly for the actions he took in the early years of the Cold War. At one time or another, when their poll ratings are slumping and their media coverage is biting, most modern American presidents like to believe they will eventually be vindicated, just as Truman was.
But Bush is largely wrong: In some of the most important areas of his presidency, it’s not too soon to draw conclusions. Just by judging against Bush’s own forecasts, some of the most far-reaching and important initiatives of his presidency didn’t work — or turned out poorly.
At the top of the list is the war in Iraq. Bush and his advisors badly misjudged what it would entail. They overestimated the international support the United States would be able to obtain for military action. They asserted before the war that American troops would need to stay in Iraq for no more than a couple of years. The administration’s public estimate before the war was that it would cost less than $100 billion; instead, it cost $2 trillion.
Intended originally as a short-term demonstration of American power and influence, the Iraq war over the longer term brought about the opposite. In its unhappy aftermath, Americans became increasingly cautious, more reluctant to become involved overseas. Overall, the war will go down as a strategic blunder of epic proportions, among the most serious in American history.
A similar fate will befall the second-most far-reaching aspect of Bush’s legacy, his historic tax cuts. Bush argued that they would stimulate the economy and spur economic growth. The short-term benefits proved dubious at best, but the harmful long-term consequences were incalculable, both for the federal government and, more importantly, for American society.
When Bush took office, America was in a brief period of budgetary surplus. There was actually a debate, forgotten and almost unimaginable today, about how to use the surplus: Pay down the debt? Launch new federal initiatives? Bush chose to cut taxes, and then did so in ways (tax cuts on dividends and capital gains) that proved immensely beneficial to the wealthiest Americans.
It’s true that President Barack Obama eventually allowed the Bush cuts on upper-income Americans to expire. But the damage had been done. Over the course of nearly a decade, the federal government became increasingly short of funds, while wealthy Americans built up greater and greater assets. Whenever you use a road, bridge or airport that needs repairs (or read a news story about the Pentagon complaining about budget constraints), you might pause to think about the Bush tax cuts and the role they played in shaping the America we see today.
Bush’s second round of tax cuts, in 2003, were historic in another sense. By then, he had already dispatched American troops to Iraq. In every previous military conflict since the Civil War, American presidents had raised taxes to help defray the costs. Bush bucked this historical trend: He lowered them.
It’s true that in a few other policy areas judgments of Bush’s presidency may improve over the years as events unfold and as more information comes to light.
The primary example could be counter-terrorism. The Senate’s recent report on enhanced interrogation techniques makes current judgments on that dark era even harsher than they would have been otherwise. Torture is torture, and no passage of time will change the moral judgments on that.
On the other hand, in the immediate aftermath of the Charlie Hebdo attacks in Paris, some Europeans began to ask why the attackers had not been kept under greater surveillance. If such terrorist attacks were to continue over many years, then judgments on the Bush-era surveillance programs might eventually come to be less harsh than they are today. Or they may come to be seen as the true beginning of a new surveillance state. More time needs to pass before historical judgments on this issue can take shape.
Overall, Bush’s presidency is likely to be remembered for his lack of caution and restraint. Once, in the midst of a discussion with his military advisors, Bush made a telling observation: “Someone has got to be risk-averse in this process, and it better be you, because I’m not.”
George W. Bush was certainly not risk-averse. He took gambles both in foreign policy and with the economy. Sometimes they paid off. Yet overall, the country paid heavily for the risks he took. History isn’t likely to revise that judgment.
By: James Mann, Los Angeles Times (TNS), a fellow in residence at the Johns Hopkins School of Advanced International Studies; The National Memo, February 10, 2015
“Republican Ideas Haven’t Changed Since The 1970s”: John Boehner Should Try Listening To His Own Economic Advice For Obama
After President Obama released his 2016 budget on Monday, House Speaker John Boehner published a list of ten things that are “newer than Obama’s ideas.” Instagram, Angry Birds, Frozen, and the selfie stick all made the cut. Boehner’s office even created a clunky hashtag for the list—#NewerThanObamasIdeas. The irony is rich: Republican ideas have hardly changed since the 1970s.
It’s true that many proposals in Obama’s budget, like increased infrastructure spending, comprehensive immigration reform, and universal pre-kindergarten, were in his previous budget too. But there were many new ideas, as well. He proposed a new, 19 percent minimum tax on foreign corporate profits—a big move towards the GOP’s preferred territorial tax system. He also wants to expand a tax credit for child care while increasing the capital gains tax rate from 23.8 percent to 28 percent. He put forward a major overhaul of the unemployment insurance system.
None of these represent radical departures from Obama’s previous agendas. But Obama is a Democrat, not a Republican. He wasn’t suddenly going to abolish the Internal Revenue Service and repeal the Affordable Care Act, just as Republicans won’t suddenly wake up and support a single-payer system and higher taxes on the rich.
And Republican ideas on the economy have aged even worse than the Democrats’ stale agenda. Take monetary policy. Throughout Obama’s presidency, GOP lawmakers have frequently criticized the Federal Reserve for low interest rates and its recently-ended bond-buying program. Those policies, they have argued, would send inflation shooting upwards. That, of course, has not happened. Inflation has remained below the Fed’s 2 percent target for years. The greater risk is actually deflation—falling prices.
Of course, in the 1970s, inflation was a very real concern. Then-Fed chair Paul Volcker raised interest rates, causing a recession, but stamping out inflation. Republicans, fearing pre-Volcker inflation, are trying to apply those lessons during a very different time, when the far greater risk to the economy has been a weak labor market. If the Fed had implemented them, it would have led to a disastrous economic contraction.
Or consider taxes. Most of the Republican Party has a laser-like focus at lowering the top marginal tax rates. But some reform-minded conservatives also want to finance a huge expansion of the Child Tax Credit (CTC)—a tax credit available to parents. They believe that the Reagan tax cuts in the 1980s that lowered the top marginal tax rate from 70 percent to 50 percent was a smart move. But they see far fewer benefits in lowering marginal tax rates now. “Let’s say we cut the 15 percent federal income-tax rate faced by much of the middle class to 10 percent,” Robert Stein writes in the reformicon’s new conservative agenda, titled “Room to Grow.” “Instead of keeping 85 cents for a dollar of extra effort, a worker would get 90 cents—an improvement of only 5.9 percent.… For these workers, cutting the 15 percent rate to 10 percent would make absolutely no difference in work incentives.” A CTC expansion would put money directly into the pockets of parents who need it. While a few prominent members in the Republican Party have adopted Stein’s tax proposal, most notably Senator Marco Rubio, the vast majority of the party would rather lower marginal rates further instead of expanding the CTC. In other words, Republican tax ideas are still stuck in the 1970s as well.
At the end of Boehner’s listicle, his office writes, “The simple truth is this: The federal budget shouldn’t be cobwebbed by the policies of the past. It should be focused on the future—a future where our kids and grandkids can grow up free from the fear of never-ending debt and a bloated Washington bureaucracy.” His party should listen to that advice.
By: Danny Vinik, The New Republic, February 6, 2015
“It’s Not Him, Republicans, It’s You”: Mitt Romney Isn’t Running, But His Specter Still Haunts The GOP
I’ll have to admit that I’m a bit surprised Mitt Romney decided not to run for president, given the man’s almost superhuman optimism and persistence. But according to various reports, the torrent of criticism Romney received when he made it clear he was considering a run had a real impact on his final decision, even though in his statement he talked about his faith in “one of our next generation of Republican leaders” (take that, Jeb!) to win back the White House.
The Republican consensus was obviously that Romney represented failure, and they need something different if they are to win in 2016. But maybe Mitt Romney isn’t the problem. It’s not him, Republicans. It’s you.
Nobody would ever claim Romney was anything like a perfect candidate. His background as a private equity titan was particularly fertile ground for Democratic attacks painting him as the representative of the economic elite, and he had a colorful way of reinforcing that impression again and again, particularly with the “47 percent” remark.
But I actually think that if he had decided to run, he would have had a better chance than anyone of getting the Republican nomination. Every GOP primary campaign for the last half-century has begun with an obvious front-runner, and every one of those early front-runners got the nomination. Romney would have been that front-runner, as reluctant as many in the party were about his candidacy. In recent GOP races, the winner hasn’t been the one who defeated his opponents, just the one who outlasted them, as one chucklehead after another became the flavor of the month and then self-immolated (remember when Herman Cain led the primary polls in 2012?). Romney could certainly have stuck around until the end.
But now the 2016 race is truly a free-for-all, with no obvious leader. And if the only lesson Republicans take from 2012 is not to nominate a CEO (sorry, Carly Fiorina), they’ll make the same mistakes all over again.
Consider that “47 percent” remark. It made for a vivid illustration of arguments Democrats were already making, but Mitt Romney was hardly the first Republican to say it. The basic idea underlying it had been repeated endlessly on conservative talk radio and by other Republican politicians for years. If it hadn’t been caught on tape, the attacks from Democrats would have been the same, and the outcome would have been the same. Another example: when Republicans exploded with joy after Barack Obama’s “you didn’t build that” remark, Romney didn’t have to convince them to make it a huge issue; they all thought it would be a silver bullet that would take the president down, and they were all flummoxed when it didn’t. They couldn’t imagine that voters wouldn’t punish Obama for an (alleged) criticism of business owners, because they forgot that most Americans work for somebody else.
The prevailing attitude in GOP circles is that Romney failed because he was the wrong messenger. Yet almost every contender is preparing to offer voters the same policy agenda that Romney did. They may be saying now that they’ll talk about wage stagnation and inequality, but when you ask them what they’re going to do about it, their answer is the same as it has always been: cut taxes and cut regulation. It’s going to be awfully hard to convince voters that they’ve had a real change of heart. And anyone who deviates from Republican orthodoxy is already finding themselves on the defensive (as Jeb Bush is for his less-than-total enthusiasm for deportations).
It isn’t surprising that the party’s diagnosis of what went wrong in the last couple of elections won’t extend to the policies they’re offering the public; those positions are rooted in sincere ideological beliefs, and changing them would be hard. But even without Mitt Romney in the race, it looks like Republicans are going to offer a program of Romneyism. They could find themselves facing voters at a time when the economy is doing well overall, and they’re particularly ill-suited to address the structural problems that keep people anxious — two strikes against them. A fresh face is unlikely to solve that problem.
By: Paul Waldman, Senior Writer, The American Prospect; The Plum Line, The Washington Post, January 30, 2015