Wednesday, September 21, 2011

Pressuring the Fed

Count me 100% on the side of those who support the concept of Congress attempting to pressure the Fed. Yes, the Fed is supposed to be independent -- but that hardly means that politicians should treat it as The Word From Above. Monetary policy is critically important, and politicians certainly should care about it, and advocate for their preferences. Indeed, I agree with those who say that Barack Obama's failure to do so (albeit by more conventional means, such as jawboning in private and...oh, yeah, actually making appointments to Fed vacancies) has been a huge mistake on his part. If presidents can and should urge the Fed to act, as they have for years, then I see no reason that Members of Congress shouldn't. As Annie Lowery tweeted, the Fed is well-equipped by design to ignore such things.

Granted, on the merits, I agree with David Frum that the GOP position is terrible economics best explained by a preference for recession conditions heading into the 2012 elections (calling it treason, on the other hand, is a bit much, although I suppose fair game after Rick Perry's recent comments). I don't for a minute believe that Republicans would have the same position if they held the White House right now. But that's part of the game; Democrats are welcome to exploit (and produce) headlines such as Stan Collender's "GOP To Fed: Let Economy Fail." Indeed, the GOP position that the Fed's dual mandate (inflation and employment) is a horrible mistake certainly seems to be something that could easily be exploited in 30 second ads.


  1. I liked this post - it's a different take on the subject than most of the other blogs out there, except for one thing that's been bothering me. Are we really cynical enough to think that the best explanation is a preference for recession conditions as a best bet to oust Obama? Everyone's saying that, (and it makes logical sense!) but I just can't bring myself to believe it... If the GOP completely controlled the government right now are you saying that they would be pushing for inflationary/expansionist/stimulative policies? My take is that they really do believe those things (QE/inflation/stimulus/what-have-you) are absolute evils, and would not advocate for them even if they were in power.

  2. If we look at Perry, at least, the clear implication of his treason comment was that he did in fact believe the Fed could help the economy. Otherwise why would printing money help Obama's re-election prospects?

  3. How is the implication of "printing money to play politics is treason" that printing money will help the economy? To me the implication is "printing money is treason, and if BB thinks it will help Obama win he's mistaken" I understand that Rick Perry is in the WRONG here - but I never really understood the assertion that he understands the issues and is arguing for recession. I think he just doesn't understand the issues.

  4. George,

    To me at least, it's hard to read Perry as you do. To me, it's pretty clear that Perry believes that "printing money" would in fact somehow help Obama, and that would presumably be by ("artificially") boosting the economy, although Perry could believe that any Fed-induced short-term boost would have greater long-term costs.

    And I'm with those (Ezra Klein, I think?) who say that Republicans probably sincerely believe right now that tight money is the right answer -- but that they would probably sincerely come up with a different answer if they held the WH. Evidence, of course, being that most of them *did* believe otherwise in 2001-2002, for example.

  5. See, BTW, more from Frum on this point:

  6. Those are good points! Thanks for the reply. But I'm still wondering, would they change their minds if they held the WH because deep down they know looser monetary policy is the right answer, or is there some other explanation/justification for switching policy positions like that?

    it reminds me of the individual mandate. first a republican ideal championing personal responsibility, then as soon as Obama supported it a vile imposition of government authority onto personal responsibility

    but there's a difference - I don't think the left would let up its badgering for inflation and mortgage adjustments etc. etc. if we are still in recession come 2012 with Perry in the WH. If the GOP pivots to support loose(er) money who would they stand in opposition to?

  7. I assume there are some Republicans who oppose stimulus for political reasons and others who believe it's wrong. I can understand the first group. It's just plain old hypocrisy, not admirable but certainly not unprecedented. It's the second group that I can't figure. Do they really believe that the economy will improve on its own if the government just "gets out of the way"? Or do they believe that a recession (or depression) is coming anyway and we may as well get it over with? If it's the latter, I suppose I can see why they might want to be less than forthcoming about the anticipated consequences of their policy recommendations.

  8. “…Perry could believe that any Fed-induced short-term boost would have greater long-term costs.”

    I think that’s right -- stimulus can always provide some sort of short-term relief, even if it actually impedes healthy recovery. Greenspan had been accused of over-stimulating the economy for the sake of Bush’s reelection -- remember, things went great… until the bubble burst. Of course, you don’t hear this charge made against Greenspan too often because the Republicans were in charge and the Democrats generally agreed with the policy.

    In this case, Republicans are motivated by both policy and politics to go after Bernanke.

  9. Jonathan -- you say Obama has failed to put pressure on the Fed, but what makes you think he disagrees with its actions?

  10. But, Couves, you can hardly say the economy is being "overstimulated" right now. Austerity will lead to contraction unless consumer demand and/or corporate demand suddenly revives to replace the slack of government demand. Since Greece was put on austerity, its economy has been shrinking by at least 5% a year.

  11. This "private" letter was clearly released to exonerate the Fed from any partisan charges on the right. It was a very calculated move. Both sides lobby constantly and the Fed tries to stay above the fray, however this situation stinks of political calculations. The Fed (under Obama) is constantly criticized by GOP prez candidates (not just Perry) for carrying water for the president. Disclosing that the right was lobbying creates the distinction that the Fed is acting in the best interests of the country not of either party.

  12. Anonymous,

    The Fed isn't "under Obama," it's under Bernanke and doing essentially what it did when Bush was president in 2008.

  13. Sorry that was an error I meant (during the Obama administration) and I wasn't making a causal claim and the Fed policy, I was just saying that the actual releasing of the letter was politically "aware". You're right that it's doing essentially the same thing as under Bush, but now (during the Obama administration) is being accused of carrying water for a political party, which it is clearly not. The releasing of the letter, I am arguing, was an attempt to display how non-partisan they are being, in my opinion, I could be wrong.

  14. No, the Fed wasn't engaging in QE until Bernanke started doing it. That's a newer phenomenon.

    And yes, QE allows Obama and the Left to more easily run massive budget deficits, which is what they want to do. So it's in political alignment with their wants. And because it's political, and encouraged by Obama political appointees, it's subject to political attack, just as we're seeing now. These attacks are all perfectly legitimate.

    If Tax Cheat Timmy had to go out on the market and hawk T-Bills, we'd find out what the market says about US debt and deficit. However, Timmy doesn't have to do so, because Zimbabwe Ben just prints up cash and buys them. Voila. QE.

    But that action has a negative knock on effect, and for the Obamabots, they're hoping those negatives don't show up before they have to run for reelection. I think they're mistaken though, as commodities pricing still seems to be rising.

  15. Indeed, the GOP position that the Fed's dual mandate (inflation and employment) is a horrible mistake certainly seems to be something that could easily be exploited in 30 second ads.


    Mr. Bernstein, a while ago, you scoffed at the notion that anybody would take notice of the Federal Reserve as a campaign issue, but now suddenly you think it's worthy of center stage. What happened?

    For the record, you've got it right this time. It is a campaign issue, just not for the reasons and in the ways that you think it is.

    Perry and others will attack, and pepper away periodically, but Obama and the Left must accept and ignore those attacks, because if they counterattack, and thus take on a firm policy position re the Fed... the counter-battery fire will destroy them. It's the 3rd phase operation that is critical here.

    This was the sheer political brilliance of Perry's original attack. It begged a response, which Obama helpfully provided, but should have ignored completely. And your "30 second spot" approach will take him down that same self destructive path. It entrees Perry and company into the 3rd phase wherein they'll seek to hang the Fed millstone around Obama's neck. But they need Obama's help to get to that 3rd phase.

    Sometimes, you just gotta take it, which poor Obama isn't experienced enough to understand. He'll step directly into this landmine, I'd predict.

  16. Scott, most economists on the right believe that the Fed’s current monetary policy is at least very risky if not actually detrimental to the economy.

    And if you want to keep us from becoming like Greece, then we need to stop the spending. Even Bernanke will agree with that.

  17. Anon (4:41),

    That's gonna be Strike Two. Technically, it's on language -- the rules around here are to keep partisan name calling to a minimum, and that's clearly violated here. But really, I'm just not seeing much except repetitive and disruptive talking points, and I'm just not seeing any attempt to fit in with local norms. So that's the last warning, and if things don't change I'll start zapping.

  18. Couves,

    I disagree. Some economists on the right believe that, but lots of them don't -- including a fairly important one, Ben Bernanke.

    I'd also say that there's no unanimity on the left, either.

    And the whole Greece thing is just completely wrong, IMO. But even if you believe in it, then it has to be "stop the deficits", right? Not "stop the spending."

  19. Mr. Bernstein,

    I understand you feel a need to censor that which you disagree with. That's a lefty norm, and I get that. You made that clear when you threatened to censor the very first post I made here... that the lefty zeitgeist here was to be upheld as a prime directive.

    However, you'd be better served to address my posts, rather than censoring them. No skin off my back either way, and while I've chosen to extend my missionary work here a few weeks beyond what I originally intended... I can leave immediately... and will if you break out the censorship schtick. Your call.

  20. Anon,

    Very simple: everyone is welcome to express whatever positions they want, but I insist on respectful language and at least to some extent engagement with relevant issues. This isn't the place for repetitive invocation of partisan talking points.

  21. Au contraire, Mr. Bernstein, this is a proven place for repetitive invocation of partisan talking points... lefty talking points, to be precise.

    Again, I can accept that you'd like to keep it that way, and censor that which doesn't conform with your preferred lefty zeitgeist here. It is your site, afterall, and that seems to be a lefty modality. And you did make that completely clear following the very first post that I made here... that you'd be censoring anything that you didn't like... so I'd better be careful with what I posted.

    And as it was my initial post that drew that reaction from you, I guess you just knew that I had to be monitored for future censorship. Somehow. After just one post. Funny how that worked, eh?

    And of course, you've continued to threaten me with censorship, again and again, since that first post.

    There is nothing disrespectful about my language, and I find it disingenuous that you'd somehow place the character of my language apart from a great deal of language I've read on this site. Sorry, but this is just wrong, and you'd have to document and support your statement before I'd accept its validity. Everybody on this site gets my respect, and public figures get treated, well, just as I see modeled on this site.

    And of course, I always engage in relevant issues. You don't like what I engage in, obviously, and your post here in particular found you challenged on both policy and politics, as well as the consistency of your positions previously elicited from you in similar Fed discussions. I realized you might find that embarrassing, and I simply pointed it out, and asked you to respond. You instantly sprang to censorship threats. I think it is you that is fleeing relevant issues, sir.

    If you'd like to discuss relevant issues, you can answer that question. It still stands, and I find your political analysis in that issue incongruous and puzzling. That sorta sends up a red flag that partisanship is driving your analysis, fyi. Inconsistency tends to expose such.

    In any event, no requirement for you to answer my question, or even to allow my questioning posts to go uncensored... but the first censored post will be the last I make here, and that will be a statement about you and this site, and one I'm quite comfortable with, as I should hope you will be.


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