Remember that time President Obama reappointed the conservative Republican Ben Bernanke to the Federal Reserve? What percent of his motivation came from the idea that this was a move towards bi-partisan cooperation?
Like a political chess grandmaster, Obama must have figured that if unpopular and unorthodox monetary policy needed to be implemented to create growth and prevent a lost generation of the American workforce, better it come from a conservative Republican chairman of the Fed. That will secure needed cover from prominent conservative and Republican leaders. It will cause conservative economists and policymakers like Greg Mankiw, Keith Hennessey et al. to be forced into motion to defend the actions of the former George W. Bush Chairman of the Council of Economic Advisors, Ben Bernanke.
Good, good times. Republican leaders are now targeting the Federal Reserve, Bernanke, QEII, the concept of “dual mandate”, the idea that any further monetary or fiscal policy with 10% unemployment would be wrong, and even the existence of the Federal Reserve itself. Also crickets from whatever support Obama was hoping to get. Greg Mankiw, who had the same CEA position as Bernanke in the George W. Bush administration, is silent. Dead silence everywhere else.
Yet all these late-movers are playing catch up to Sarah Palin. Noam Scheiber has written a great piece, Fighting the Fed, about Sarah Palin’s new move against current monetary policy:
Let’s be clear: Even with the help of what was presumably a pricey speechwriting team, Palin’s ignorance of monetary policy is difficult to repress. The recent path of food prices was hardly the only curious claim in her Phoenix speech. There was, for example, her discussion of quantitative easing as though it were sorcery. “And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air,” she complained. True-ish. But, as Ben Bernanke explained shortly after the Fed announcement, that’s pretty much how all of monetary policy works. Whenever the Fed wants to lower the standard, short-term interest rate—as it has done repeatedly over the decades—it effectively creates money to buy up short-term Treasury securities. Somehow, Palin never previously felt the need to dwell on this…
What Palin is after here, of course, isn’t a debate over the finer points of interest-rate setting. It’s just the latest instance of her lashing out against meritocrats and intellectuals, whom she feels talk down to her and her fellow repositories of homespun wisdom. Palin has always practiced a kind of identity politics in which one’s views deserve privileged status by virtue of they’re not being informed by any specialized knowledge. Hers is a politics of resentment—resentment at being led by the sort of snobs who think governing requires expertise. She betrays herself by getting so defensive in her exchange with Reddy, whom she sneeringly labels a “prestigious reporter for The Wall Street Journal”—another pointy-head, in other words….
By contrast, there’s another species of Tea Partier that invokes a tightly wrapped logic in its attacks on government. These would be the hard-money conservatives Pearlstein alluded to, of which Ron and Rand Paul are probably the most famous. The Pauls trace most of the country’s problems back to the government’s monopoly on minting money, which it then debases so as to expropriate wealth from its citizens.
One thing to add: from a politics point of view the Federal Reserve has a very low popularity rating. I can’t find current numbers but last summer the Fed was less popular than the IRS. I’m assuming that hasn’t changed much, and if it has could easily go back. So the more the Obama administration is linked to the Federal Reserve, the better for bad associations and poll numbers.
Which is the path back for a GOP 2012. With the Federal Reserve now becoming politicized, how can the Democrats hope to counter the creditor class without being tainted by the Federal Reserve’s bailout? And will monetary policy itself become as political tainted and as much of a target as fiscal policy? We are about to find out.