On GOP Opposition to Quantitative Easing

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DECEMBER 20, 2010

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Of all the strange things that Republicans have freaked out over during the last two years—a federal version of Mitt Romney’s health care plan, a continuation of George W. Bush’s bank bailout, a failed attempt to implement John McCain’s climate bill—perhaps the strangest target is Milton Friedman’s monetary policies. Yet here we are.

Last month, the Federal Reserve announced it would purchase $600 billion in Treasury bonds in order to push down long-term interest rates and spark the moribund economy—a practice known as quantitative easing. Conservatives exploded in outrage. The Republican group e21 published a scathing open letter to Fed Chairman Ben Bernanke by economic luminaries such as Bill Kristol, while GOP lawmakers stoked fears of hyperinflation. Several Republicans in Congress introduced bills to change the Fed’s dual mission from one of balancing low inflation with high employment to a single mission of fighting inflation at all costs.

Inflation-phobia does hold a cherished place in the conservative canon. Inflation is a tax on wealth, while unemployment penalizes labor. Naturally, conservatives cherish price stability. What’s new is the sudden ascendance of radical, hard-money beliefs. Fox News demagogue Glenn Beck has spent months stoking fears of Weimar-like hyperinflation, while imploring his audience to buy gold, the preferred currency of inflation-phobes. Incoming House Budget Committee Chairman Paul Ryan hyperventilates, “we’re coming untethered with our sound money roots.” Meanwhile, core inflation is very low and falling.

During the last (and far less severe) recession in 2001, conservatives raised no objection to aggressive lowering of interest rates. Sometimes liberals and conservatives disagreed over how low to let unemployment go before the Fed raised rates, but nobody advocated that the Federal Reserve stand aside in the face of mass unemployment. Republicans no less than Democrats have advocated low interest rates during recessions. “I don’t know a single American that wants [interest rates] higher,” noted President George H.W. Bush in 1992. “I think every American would like to see them lower.”

Now, it is true that the Fed’s quantitative easing is a less conventional way to reduce long-term interest rates than the usual methods. That merely reflects the fact that short-term rates have hit near zero. Until recently, buying up longer-term bonds was a perfectly respectable conservative answer to the problem of a stalled economy and no further room to cut short-term rates. When Japan faced a similar crisis a decade ago, conservative icon Milton Friedman urged, “They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high-powered money starts getting the economy in an expansion.”

That is exactly what conservatives so hysterically denounce the Fed for doing today. The orchestrated explosion of right-wing outrage has not merely provided one more reason for Glenn Beck’s audience to stockpile ammunition and lie awake at night in bug-eyed terror. It has actually intimidated the Federal Reserve into curtailing what was expected to be an ongoing policy. Fed governors—“wary of finding themselves at the center of a partisan fight,” as The Washington Post reported—scotched plans to expand the program.

The right’s sudden about-face on monetary easing mirrors a similar reversal on fiscal easing. During previous recessions under Republican presidents, conservatives happily endorsed fiscal deficits to spark growth. “Because the economy is slowing down, I believe it is vital that Congress pass a pro-growth tax cut,” averred Dick Armey in 2001, espousing classic Keynesian logic. Over the last two years, though, the conservative movement has suddenly turned against Keynesianism. Suddenly, hoary, fatalistic right-wing doctrines emphasizing the need for discipline and economic pain are back in vogue.

Naturally, liberals view these radical turnabouts as something other than a sudden, coincidental lurch in the right-wing intellectual zeitgeist. After all, these newfound stances give Republicans convenient grounds from which to oppose any policy that might blunt the pain of the recession, which is the primary source of their political gains. “Republicans,” wrote Paul Krugman, one of several liberals to voice the charge, “want the economy to stay weak as long as there’s a Democrat in the White House.”

The critique has provoked an indignant Republican outcry. “It is difficult to overstate how offensive elected Republicans find the sabotage accusation,” complained former Bush speechwriter Michael Gerson.

It is surely true that Republicans are not skulking around Washington, rubbing their hands together and plotting economic doom so they can seize power. Almost nobody is so consciously cynical. People are extraordinarily adept at convincing themselves that whatever they think is good for themselves is also moral. Think of “The Sopranos,” where murderous criminals blame their victims for being deadbeats or degenerate gamblers, justify their livelihoods as a response to anti-Italian discrimination, and create an entire vocabulary of rationalization, in which a term like “earning” describes what would more accurately be called “stealing.”

Likewise, once Democrats took control of the government, a host of previously marginal beliefs about fiscal and monetary policy suddenly looked a lot more attractive to the GOP. Stimulating the economy through deficit spending and economic growth may have consensus support among economic forecasters, but they do have costs. The cost of adding some onetime debt to climb out of a severe economic crisis, or the risk of inflation in a stagnant economy, may be minuscule compared to the horrors of mass unemployment. But once you grasp that alleviating joblessness will redound to the benefit of your opponent, then the risks associated with growth, however remote, will begin to look enormous.

Upton Sinclair gave the most pithy summary of how this mental process works: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” The right’s embrace of economic masochism may not be cynical, but it is an expression of political self-interest. If the GOP controlled the government today, the chances that the party would be implementing the fiscal and monetary policies it now demands are nil.

Jonathan Chait is a senior editor for The New Republic. This article ran in the December 30, 2010, issue of the magazine.

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