Hidden between tax cuts for the wealthy and social prohibitions for the masses, the GOP platform also includes some archaic monetary policy: a proposal to investigate the feasibility of a fixed dollar, à la Reagan’s Gold Commission.
Many might guess that this plank was included to appease Ron Paul and mollify his loyal followers, but these seems unlikely given the massive snub he received at the GOP Convention.
A more probable cause for its inclusion would be the bottom half of the ticket and the GOP’s intellectual leader (an oxymoron in itself). Paul Ryan – whose love affair with sound money probably began with his first reading of Atlas Shrugged – once lectured to Ben Bernanke that “There is nothing more insidious that a country can do it its citizens than debase its currency.”
Ryan’s views on monetary policy are as radical as his disdain for the social safety net. As early as 2009, he called for the Fed to abandon its unemployment mandate and instead “explicitly embrace inflation targeting.” Ryan does not seek to peg the dollar to gold like Ron Paul, rather, to a basket of commodities. The lack of monetary flexibility hampers the effectiveness of either system and enhances the depth of downturns.
Sound money advocates are generally inflation hawks who promulgate the evils of the I-word and fiat money’s unerring tendency towards debasement. However, there is another alternative brand of monetary hawk – one that opposes monetary stimulus for purely political purposes. Cue Mitt Romney, who recently derided Ben Bernanke’s policies for, among other things, promoting inflation:
I don’t think QE2 was terribly effective. I think a QE3 and another Fed stimulus is not going to help this economy. I think that is the wrong way to go. I think it also seeds the kind of potential for inflation down the road that would be harmful to the value of the dollar and I think harmful to the stability that our nation needs.
Whether a politician opposes fiat money on ideological grounds or prefers Federal Reserve inaction for political gain, the gold standard’s track record is anything but shiny:
These graphs illustrate a few trends:
1) The gold standard does not promote price stability.
2) Inflation, under the Obama administration, has lingered near or below 2%, its optimal level.
3) QEs have not had adversely affected inflation.
Yet, Republicans refuse to accept even a little inflation in return for reduced unemployment, for two reasons:
1) Inflation hurts creditors by lowering the real value of their debt.
2) Reduced unemployment helps Barack Obama’s re-election prospects.
Meanwhile, Nobel Prize winning economist Paul Krugman extols the benefits of increased inflation – it would speed up the process of deleveraging (paying down debt) and encourage investment by raising the opportunity cost of holding money.
Regrettably, the Federal Reserve seems to be bending to Republican pressure. Consider this statement from recent FOMC minutes:
Nonetheless, many members expected that at the end of 2014, the unemployment rate would still be well above their estimates of its longer-term normal rate and that inflation would be at or below the Committee’s longer-run objective of 2 percent. A number of them indicated that additional accommodation could help foster a more rapid improvement in labor market conditions in an environment in which price pressures were likely to be subdued. Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery. Several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action. One member judged that additional accommodation would likely not be effective in improving the economic outlook and viewed the potential costs associated with such action as unacceptably high. (emphasis added)
The Fed appears under minority rule; listening to “several members’ and “one member” while ignoring “many members.” As a forecasting note, this release strongly hints towards more monetary stimulus in the future – but acknowledges, both implicitly and explicitly, the need for it now. Perhaps the GOP platform’s monetary madness was also designed to curb Federal Reserve action prior to the election.
Republicans, however, are trying to have their cake and eat it too. Not only is the GOP actively seeking to limit inflation – at the behest of its corporate owners and to the detriment of the unemployed – but also attempting to blame President Obama for (non-existent) inflation!
Enter Margaret Hoover, Republican strategist and CNN contributor, making the “you’re worse off than you were four years ago despite all evidence to the contrary” argument:
Because, I mean, the bottom line is Americans — yes, I mean, obviously it’s how Americans feel. But the truth is, we still have an 8.4 percent unemployment rate and Americans are still struggling from that. Prices of commodities and items that you buy at the grocery store are higher. People are having a harder time getting through on all the basic items of daily life. (emphasis added)
While Ms. Hoover has a laudable reputation as an LGBT activist, this does not give her the right to spout economic blasphemies.
Inflation has been categorically non-existent during the Obama administration. Inflation would help the millions of Americans that owe billions in student loans, underwater mortgages and credit card debt.
But embracing a scareflation strategy – seeking to blame Barack Obama for an economic problem that doesn’t exist – reinforces the GOP’s win-at-all costs mentality and apathy to reality.
(09/07/12) Update: Romney just doubled down on the “prices are rising” statement on the stump in Iowa.