Wednesday, September 21, 2011

Maybe the GOP Leadership Has Known All Along

That additional monetary stimulus would help the economy.  That is the only sense I can make of the letter from Republican leaders in Congress sent to Federal Reserve Chairman Ben Bernanke asking him to refrain from further monetary stimulus.  They may realize that a truly bold monetary stimulus program like FDR's original quantitative easing program of 1933-1936 can turn a depressed economy around and affect political outcomes.  If so, this understanding would also explain Governor Rick Perry's comments about Bernanke committing treason if he printed more money before the election.  It would be truly tragic if in fact these politicians were making this tradeoff between political gain and economic gain. 

There is, though, a silver lining to these developments. Marcus Nunes notes that the congressional letter actually opens the door for the Fed to do something bold if they can justify it:
But you don´t have to read far [in the letter] to see the message Bernanke should heed:
They said Fed officials should avoid further action, “particularly without 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.”
Yes, the GOP just gave Bernanke an opening to establish a NGDP target!
As Josh Hendrickson recently explained in the National Review, nominal GDP targeting is consistent with Republican ideals and provides an opportunity for the GOP presidential candidates to promote a meaningful rule-based approach to monetary policy.  I concur and have similarly argued that a nominal GDP target would provide Republican lawmakers a way to narrow the Fed's mandate.  I hope they are listening.

1 comment:

  1. Several (highly intelligent) bloggers, such as Marcus Nunes and David Beckworth, have suggested that Bernanke seize the moment, and declare NGDP targets.

    I agree, but I think some PR groundwork needs to be done, in which NGDP is introduced as a very "conservative" approach to our national ills.

    (Frankly, political labels have become play-dough in recent decades, what with Ron Paul recommending huge cuts in Defense, and Obama waging endless war in Afghanie, as just one example. How about mandated ethanol?)

    I call on Beckworth, Hendrickson, Nunes, and Sumner to co-author an op-ed for the WSJ, using Friedman and every conservative buzz word you can think of.

    BTW this is an excellent read, from Paul Kasriel, Northern Trust economist, who appears to "get it":

    http://graphics8.nytimes.com/packages/pdf/opinion/oped/econtrarian_090711.pdf

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