One of my biggest problems with the Republican party is the stance of much of the party on monetary policy. It is driven by the Ron Paul types, it is misguided and mistaken, and it will wreak havoc on the economy if implemented. And while party platforms are usually not worth the paper they are written on, it concerns me greatly that the Republican party is making a public show about buying into some seriously bad ideas.
Start first with the silly notion that we need some kind of “audit” of the Federal Reserve, and that we ought to consider going back to the gold standard. The “audit” idea is just a badly disguised way of robbing the Fed of any independence whatsoever, and making sure that it is too intimidated to implement expansionary monetary policies that economists like Milton Friedman–no socialist, he–enthusiastically supported in circumstances like the current economic predicament. The word “audit” usually brings up notions of some kind of scrupulous accounting; this “audit” however is more a “nice Federal Reserve you got here. Wouldn’t want anything bad to happen to it” kind of reckoning.
Then there is the idea of the gold standard, which is succinctly and properly shredded to bits in this Q&A:
. . . a gold standard – paper money that must be redeemable for actual gold – means you can’t print any more money than you have of the hard stuff.
We want the economy to grow, right? That means more goods and services produced next year than this. But now suppose we can’t find or produce any more gold, so the money supply has to remain constant. How will we pay for the added goods and services? We’ll be short of money. Which means the producers will eventually say, ‘The hell with it’ – and stop producing more. And so the economy won’t grow after all.
I might add that if we returned to a gold standard worldwide, countries with little gold would truly be up s*** creek without a paddle–not that conditions would be much better in countries with substantial gold reserves, since they would still be constrained in their ability to print money in recessionary times. Also, the price of gold would absolutely skyrocket, reigniting general concerns about inflation. Do we really want to be in a situation in which we are facing both an economy that only grows slowly–if at all–and high inflation? I seem to recall that the stagflationary times of the 1970s did not exactly constitute Paradise on Earth. Why have others forgotten that fact?
Then there is Mitt Romney’s absolutely berserk attack on Ben Bernanke. I am sure that Romney, in his heart of hearts, knows that Bernanke has done an excellent job as the Federal Reserve chairman in a very difficult time during which he faced unprecedented challenges. It would be nice if Romney would have lent Bernanke some political cover instead of trashing him for–again–doing what people like Milton Friedman would do in similar circumstances. I would hope that Romney would listen again to his own economic adviser, Glenn Hubbard, who properly praises Bernanke for the work the chairman has done. Better to do that than to make Bernanke the scapegoat for our economic woes.
I have written and said this before, but I will write again that there is a reason for the current spate of derangement on the part of the GOP when it comes to monetary policy: The Ron Paul types have the loudest and most insistent voices on the subject, and they are driving the conversation. Other Republicans don’t appear to care enough to fight back. They ought to start caring. The Paulites will only damage the GOP brand if they are able to exercise unimpeded influence on this and other subjects and Republicans of all stripes–including libertarian Republicans, since Ron Paul isn’t much of a libertarian–had better work to push back against the Paulites on this and other policy fronts.