JONATHAN COHN SEPTEMBER 21, 2011
-
Read Later
READ LATERAvailable only to subscribers. SUBSCRIBE TODAY
-
Listen
ARTICLE AUDIO
- Font Size
So now the Republicans want to go all Tony Soprano on the Fed.
On Tuesday, the GOP's four congressional leaders sent a formal letter to Federal Reserve Chairman Ben Bernanke. The Fed today finishes a critical two-day meeting, during which it will discuss whether to swing into action again, taking steps that could boost economic growth and reduce unemployment. Many and probably most mainstream economists think that's the right thing to do. The Republicans do not.
They were not happy the last time the Fed intervened. Most famously, Texas Governor and GOP presidential front runner Rick Perry described Bernanke's actions as "treasonous." This time, they're not waiting for the Fed to act. In the letter, they say the Fed "should resist further extraordinary intervention in the economy."
The letter gives some reasons why, according to the Republicans, further action would be ill-advised. Among other things, the writers (House leaders John Boehner and Eric Cantor, Senate leaders Mitch McConnell and Jon Kyl) say the Fed should offer "a clear articulation of the goals of such a policy, direction for success, ample data proving a case for economic action and quantifiable benefits to the American people." That part, at least, doesn't sound too hard to me: They could start by cribbing relevant material from Paul Krugman.
But let's not kid ourselves. The significance of this letter isn't the material in the text. It's the threat lurking behind it. If Bernanke and the Fed act, the authors are saying, Congress will get much more involved in the way the Fed conducts business.
As a matter of governing principle, would such involvement be problematic? Calls to make the Federal Reserve more accountable to elected officials have a long, bipartisan, and perfectly respectable history. (Here's economist James Galbraith making that argument, in the American Prospect, back in 1994.) And you can count me among the observers frustrated that the Fed hasn't been even more aggressive about boosting the economy, apparently because it takes its mandate to maintain stable prices more seriously than its mandate to maintain high employment.
But there is a proper way to impose such accountability: By requiring more transparency on Fed decision-making, changing the board's makeup or mission by law, demanding more answers when the Fed Chairman testifies before Congress. That's different from having Congress set monetary policy -- or threatening to do so via letter. That's what worries smart economists like Mark Thoma:
History tells us that politicizing monetary policy is a bad idea -- giving control of the money supply to politicians generally leads to high inflation -- and for this reason most countries have a monetary authority with some degree of independence.
Robert Reich, citing his experience in the Clinton Administration, agrees:
When I was Secretary of Labor in the Clinton Administration, it was considered a serious breach of etiquette — not to say potentially economically disastrous — even to comment publicly about the Fed. Everyone understood how important it is to shield the nation’s central bank from politics.
If global investors suspect the Fed is responding to political pressure of any kind, investors will lose confidence in the independence of the Fed and its monetary policies. Even if the pressure is to tighten the money supply and keep interest rates high, it’s still politics. And once politics intrudes, lenders of all stripes worry that it will continue to intrude in all sorts of ways. Lending to the United States becomes a tad riskier. As a result, lenders charge us more.
Henry Aaron, the Brookings economist, is more blunt. Via email, he calls the letter "simply a gentleman's version of Rick Perry's shrill cry." And, of course, there's the question of whether Republicans are deliberately trying to undermine the economy, since that would make it more difficult for Obama to win re-election. Via Steve Benen:
The “sabotage” question comes up from time to time, and this certainly won’t help. As things stand, Republican leaders, some of whom have admitted that defeating President Obama is their single highest priority, now want the Fed to sit on its hands, want to strip the American Jobs Act of its most effective measures, and want to raise middle-class taxes. Oh, and they’re threatening to shut down the government, too. These are just the positions they’ve talked up over the last week.
Whether or not you agree with these arguments, this letter seems to be of a piece with the Republicans' unprecedented use of the filibuster to block legislation, their refusal to confirm executive branch appointees over policy differences, and their willingness to use the debt ceiling as leverage in their efforts to rewrite the federal budget.
In other words, it looks like the Republicans are once again violating a political norm -- while advising action that could keep hundreds of thousands of Americans out of work -- in order to advance their policy agenda, their political cause, or both. They're breaking the rules, at least as currently understood, because it will help them get their way.
Say what you will about Tony Soprano, but even he lived by a code.
Update: Ezra Klein points out that this sort of thing is not entirely unprecedented: In 1982, for example, then-House Speaker Jim Wright, a Democrat, called for then-Fed Chairman Paul Volcker to resign because of his tight monetary policy. But, as with the use of the debt ceiling as a bargaining ploy, this effort seems more serious and threatening than anything we've seen in a long while. I've also adjusted the wording of this item to reflect that.
15 comments
"And once politics intrudes, lenders of all stripes worry that it will continue to intrude in all sorts of ways. Lending to the United States becomes a tad riskier." Gee, that sounds like "uncertainty" to me. I thought the Republicans wanted to avoid that at all costs. "And, of course, there's the question of whether Republicans are deliberately trying to undermine the economy, since that would make it more difficult for Obama to win re-election." This isn't just a question that should be considered. It's the obvious GOP strategy, and if anything should be called treasonous, it's this. The Republicans should be roundly denounced for what they're doing, and all of their pious and outraged denials of any intent to harm the economy and keep unemployment high should be shredded—often and loudly. The time for civility in dealing with these scoundrels is long past.
- DAVIDDREIER@EARTHLINK.NET-old
September 21, 2011 at 10:15am
The Republicans might politicize a part of government which functions best only if it is independent. Would the judiciary be in that category? What the Republicans mean by independent actions are those actions that they want independent of the rest of the country.
- Nusholtz
September 21, 2011 at 10:35am
Let's hope the Democrats are politically smart enough (I rarely start sentences with that) to remind the American people of how shamelessly Republicans politicize the agencies - and the results. Remind them of Brownie, of the disgrace done to the Justice Department under Bush. I wish Bernake would issue a press release with some foul language and leave it at that. "Bite me" will do.
- WandreyCer
September 21, 2011 at 10:40am
As we discussed at length in some of my classes when I was in college, the dangers with politicizing the Fed go beyond spooking financial markets, though for largely the same general reasons. First and foremost is that responding to political pressure often directly interferes with the Fed's goal of stabilizing prices and encourging high employment. Behold the current wishes of the GOP and you can easily see how, if the Fed were required to court them, their hands would be tied as far as taking meaningful steps to reduce unemployment. Alternatively, a more populist president could demand that the Fed massively inflate the money supply to reduce average Americans' debt burdens and thereby drive some investment capital away and potentially even lower employment as fewer business loans were issued. The Fed simply cannot be subject to the whims of politicians and consistently adhere to their charter at the same time. More sinister is the possibility that a politician or political party would deliberately goad the Fed into either improving or detracting from the economy for political gain. I'm sure nobody here (aside from the usual suspects) would be hard pressed to imagine the current crop of reactionaries purposefully depressing the economy in order to reduce Obama's chances at reelection. But the opposite situation is possible to imagine as well, albeit far less likely - that of a Democratic Congress pressing for much lower unemployment at the risk of price stability in order to increase Obama's reelection prospects. Scary stuff. The reactionaries should think long and hard about going down this road. Somehow I doubt it will even occur to them to pause and think about the implications.
- tealeaves
September 21, 2011 at 11:25am
"Let's hope the Democrats are politically smart enough (I rarely start sentences with that) to remind the American people of how shamelessly Republicans politicize the agencies - and the results. Remind them of Brownie, of the disgrace done to the Justice Department under Bush." Democrats politically smart enough? They are more concerned with reminding the American people of Obama's 'failures'...
- wkwami
September 21, 2011 at 12:51pm
First, I hate so-called Progressives because they are exactly the opposite, Regressives. So f*****g self-righteous! And so stupid as to shoot themselves, and the rest of us, in the foot with nary the bat of an eyelash. Second, to the question "Would the Congressional Republican Leadership want to poison the economic as well as political waters?" You betcha they would! Why should they care after all, their bread is buttered and that's all that matters, save beating Obama by any and all means.
- Tgossard
September 21, 2011 at 1:05pm
If in fact - and it increasingly appears likely - the Republican Party is willing to damage the economy in order to secure the White House and Congress in 2012 so as to further their cracked right wing agenda, then it's not Bernanke that is committing treason - it's the whole Republican Party. And I don't mean this as hyperbole. The damage done to our economy in the last decade by the natural response of the finance industry to deregulation, combined with massive unfunded tax cuts and spending, has damaged our national security and future potential enormously. Going further down these paths - say by defenestrating he Fed for political ends - can only do further damage. There are only two possibilities - either the Republican party is so poorly connected to facts and reason as to believe their own toxic economics, or they understand the risks and are willing to push bad policy anyway to further their political rise. In the first case they are extremely harmful idiots. In the second, they are guilty of treason. I have long held that the first was the defining characteristic of the modern Republican party. I'm not sure any longer.
- IowaBeauty
September 21, 2011 at 1:07pm
Second Tgossard - if "progressives" - and I know a few in this camp - mount a primary challenge to Obama and damage his re-election prospects in any way, they ought to be tarred and feathered and road out of town on a rail. Nader self-righteously contributed to the Bush "win" in 2000, and he's obviously willing to risk the same calamity (only worse - Rick Perry scares the shit out of me) again. We live in a nation with a very strong conservative constituency, and one that is over all center-right on many critical issues. We are not going to be Sweden anytime soon, but we sure as hell can be better than Russia, if we at least stick by real progressives fighting the good fight for a fairer, more uniformly prosperous country. Right now, with a Perry presidency, Russia is not far from where we may end up.
- IowaBeauty
September 21, 2011 at 1:15pm
On the plus side, Nader currently maintains these will not be "serious" challenges but rather a forum for debate. Moreover, this is a primary stunt and not a general election challenge. He's probably trying to avoid another Bush-style presidency, though I and many others have serious doubts over his purported effect on the 2000 election which so many seem utterly convinced of. Even still, this would be a bad idea since people with only a passing interest in politics would see the Left and the Right both complaining about the man and draw the conclusion that he's not been a good president by anyone's standard. All I'm saying is let's not get too agitated because this isn't even close to the same thing as Nader's campaign in 2000.
- tealeaves
September 21, 2011 at 1:47pm
Cohnless: Is your belief system really this screwed up, e.g.: 1. Believe that Krugman is a mainstream economist 2. Believe that Quantitative Easing doesn't have a detrimental effect on economy 3. Believe that criticizing a dangerous Fed policy is the same as passing ObamaCare without a single Republican vote (vs. Medicare passed with a majority of Republicans in congress) Moonbat morons have no bound
- mr_rationale
September 21, 2011 at 2:27pm
John F Kennedy called the left "suicidal bastards."
- WandreyCer
September 21, 2011 at 2:40pm
Mr. Rat: Today's lunatic Republican Party is a far cry from the GOP that existed in 1965, or aren't you aware of this fact? If Medicare had been introduced this year, it would have received zero Republican votes in Congress. Talk about moonbat morons.
- DAVIDDREIER@EARTHLINK.NET-old
September 21, 2011 at 5:12pm
There's not going to be a primary challenge to O'bama. Nor should there be. As a matter of theoretical principle, it basically boils down to whether you believe man is capable of self government. I do. "History tells us that politicizing monetary policy is a bad idea -- giving control of the money supply to politicians generally leads to high inflation." I'm not sure I understand the argument that "Washington" won't be able to resist trying to please everyone and as a result will end up printing inflation. Aren't they doing that anyway with massive deficits? But of course in this model they're paying interest? Isn't it logical to assume that the savings the treasury could make from not having to pay interest would far outweigh any excesses from Congress? And wouldn't political pressure ensure some degree of restraint there anyway? If you're going to follow that logic, why not create an independent body that would determine the annual budget priorities? Would be nice to read some exploration of such questions in the likes of TNR. Instead of having to rely on the mentalists to raise them. Also, isn't all monetary action and inaction by definition, political? There are winners and losers in every Fed decision (creditors vs debtors at the most simplistic level). I think the notion that the Fed is a neutral machine has more to do with the allure of Technocracy than anything else.
- IggyPop
September 21, 2011 at 7:34pm
Cohnless? Are you serious? You couldn't even go with Cohnhead or Cohnestoga wagon? You should be ashamed of yourself, rationale. Obviously this isn't in the ambit of your frenzied hackery for whatever the Republican position is and against what is written on this site, but still. Terrible hackery requires no especial creativity, and you are certainly a mere mortal compared to your Frank Luntzes, your John Taylors, or your Veronique de Rugys. I blame the post-tenure ossification that needs must have befallen you at Heritage. But I did hold out hope for greater creativity when it came to name-calling. No doubt your lack of creativity and innovation proves you to be a Galtian parasite.
- chaitless
September 21, 2011 at 10:31pm
Touché, Chaitless. Almost fell off my chair! Beauty, please don't go off the reservation. Very unlike you. A third possibility is that the repubs (rightly or wrongly) truly believe that in order to remain a vibrant country, public spending needs to be lower and to correspond with historical revenues. Nothing sinister there, though I wish they would acknowledge the Bush mistakes. And even with a Perry, we won't be Russia, seriously!
- ds111
September 22, 2011 at 11:26pm