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The coming right-wing front on monetary policy

By Michael Konczal

In May 2010, the Maine state Republican convention produced and voted for an ultra-conservative platform ("investigate collusion between government and industry in the global warming myth, and prosecute any illegal collusion. ... Repeal and prohibit any participation in efforts to create a one world government") out of nowhere, showing at how far off-center the local parties were becoming and hinting at how that might influence national politics. One item I and others noticed in there was this: "Pass and implement Fed bill #1207 (Introduced by Ron Paul), to Audit the Federal Reserve, as the first step in Ending the Fed."

I was interested in the Audit the Federal Reserve amendment (I did an interview with Dean Baker around that time on it), one of the few items to gain bipartisanship traction. But I understood it as the first step in promoting a more transparent, accountable Federal Reserve that is less dominated by the interests of regional bankers and the financial sector, not as a first step toward abolishing it.

What a bizarre time for monetary policy and the conservative right. First Ron Paul, who wants to "End the Fed," is put in charge of Federal Reserve oversight with the GOP taking over the House.  Sara Palin attacks inflation, quoting Reagan as saying it is “as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man." World Bank President Robert Zoellick wants to return to a gold standard. Kansas City Federal Reserve Bank President Thomas Hoenig, who wants to raise interest rates because he is worried unemployment might come down too quickly, will be advising the House GOP. The conservative guns are now moving from fiscal policy toward monetary policy.

Palin is a savvy reader of where the grass-roots conservative mind is going, so if she is starting to move the goalposts on attacking Bernanke, there's probably a larger move going on. And I'm curious to watch this battle unfold between the far right and the center right. The center right has been building fortifications in sensible thinking about monetary policy during 2010, in advance of this wave election. Back in February, David Frum wrote against Ron Paul's crusade against the gold standard, an argument he's been having since at least 2007 with the Paul team.

And Josh Barro, who also noted  the Maine state convention anti-Fed argument,  wrote a story for the National Review, "Mend the Fed," where he argues against the rapidly growing mainstream conservative argument of abolishing the central bank and moving toward the gold standard ("It does not follow, however, that we can do without a central bank or that we should return to the gold standard. Indeed, these moves would expose the United States to sharper business cycles and more frequent banking panics -- all to solve an inflation problem that doesn’t exist").

I do wonder how this battle inside the right will play out over the next few years, years in which the Federal Reserve actually being able to hit its inflation target would make the difference between the prospects of a generation being economically productive or a generation lost to hysteresis and isolated from functioning labor and economic markets.

Mike Konczal is a fellow at the Roosevelt Institute. He blogs about finance, economics and other topics at Rortybomb and New Deal 2.0, and you can follow him on Twitter.

By Michael Konczal  | November 10, 2010; 11:15 AM ET
 
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Comments

Using loaded words like "ultra" ("ultra-conservative), or "far" as in "far-right", does not constitute a reasoned argument.
It is more fear mongering, and makes folks think the author cannot battle in the realm of ideas and logic.
To attempt to scare "independents" by using "extreme" adjectives to sully politicians you disagree with?
Propaganda. Not analysis.
Try avoiding the scare words, or I will call you an "ultra-leftist", or maybe a "far-left propagandist".

Posted by: johnL1 | November 10, 2010 11:43 AM | Report abuse

Mike,

It's all blather. Nobody seriously believes that we will ever return to the gold standard. I think the talk is largely an acknowledgement, belatedly by many, that the President has a lot less power on the economy than the unelected and largely unknown Fed chairman.

The Fed is likely to greatly overshoot their targets though on inflation. As long as we use core inflation as a measure, the Fed will be conducting QE3 and 4 while people are paying over $3.00 for gas, much higher food prices (multi-year high ag commodity prices)and much higher mortgage costs (did you see the change in the 10 year yield?).

To quote former Senator and actor Fred Thompson in his role in "The Hunt For Red October"

"This business will get out of control. It will get out of control and we'll be lucky to live through it."


Posted by: 54465446 | November 10, 2010 11:53 AM | Report abuse

"Back in February, David Frum wrote against Ron Paul's crusade against the gold standard,"

I think that should read "Ron Paul's crusade FOR the gold standard,"

Also, the link for the David Frum article is messed up.

Posted by: Nylund154 | November 10, 2010 11:55 AM | Report abuse

Don't get me wrong. I LOVE QE2 and Ben Bernanke. I have been shorting Treasuries and long on the dollar before this week, and soon I will reverse and go long commodities on dips again with my ill-gotten gains. A pirate's life for me!

Posted by: 54465446 | November 10, 2010 12:01 PM | Report abuse

Also, this is not the first time populist anger has turned against the federal banking system. Andrew Jackson abolished the Second Bank of the US leading to the Panic of 1837 (a financial crisis): http://en.wikipedia.org/wiki/Panic_of_1837

The arguments against the Second Bank, which was formed to combat inflation, were somewhat similar to the ones we here today: http://en.wikipedia.org/wiki/Bank_War

Note: President Robert Zoellick backed away from his previous statement before you posted this blog.

Posted by: chrisgaun | November 10, 2010 12:49 PM | Report abuse

Please dont start trying to throw Dr. Paul into the 'extreme right wing' category.
Please Americans stop thinking that your political parties are 'extremists' like Muslim jihadis or something.


Dr. Ron Paul, Congressman Former Presidential candidate, Is one of the last great hopes for this country. Im also not holding my breath because with the 'power' that the Fed has, the amount of leverage they have might prevent Dr.Paul from becoming the head of the monetary policy.

Posted by: peace4mankind | November 10, 2010 1:46 PM | Report abuse

Putting hard-line critics of the Fed like Ron Paul in positions of oversight and the jumping on the Fed-bashing bandwagon by Palin is likely just another aspect of the effort to weaken FinReg by keeping Bernanke and the Fed on the defensive.

Also, that someone in a position like the World Bank president would even float the idea of a gold standard was questionable if not nuts.

Posted by: tuber | November 10, 2010 1:47 PM | Report abuse

tuber wrote:

"Putting hard-line critics of the Fed like Ron Paul in positions of oversight and the jumping on the Fed-bashing bandwagon by Palin is likely just another aspect of the effort to weaken FinReg by keeping Bernanke and the Fed on the defensive."

No one needs to weaken fin reg since it was about as weak a piece of legslation as imagineable under the circumstances.

Posted by: 54465446 | November 10, 2010 3:57 PM | Report abuse

Interesting how David Frum is characterized as a centrist Republican. Well.
Frum is a Canadian neocon, the archictect of Bush jr.s Axis of Evil speech, and he is as much an authority on monetary policy and central banking as he and the rest of the neocons were on the Iraq War. That is to say, a very pernicious influence on everybody outside the neocon club.

The neocons have been working very hard to subvert Sarah Palin. To see her taking the paleocon Ron Paul's side on the central bank/gold issue must drive them nuts. Like the article states though, Sarah Palin is way better at judging grassroots opinion than these neocons are. Maybe they ought to trot out William Kristol to talk to the Tea Party on his worthy opinions on economics and the American national interest. Yah, that would be a winner.

Posted by: ronin1776 | November 10, 2010 4:38 PM | Report abuse

The right is just not about thinking, logic, and science anymore. It's the ideology, government always bad, pure free market always good, and no Fed means less government more pure free market in their simpleminded heads, and logic and evidence will have little or no effect. Same with global warming. Global Warming's existence means pure free market not good, some government good, and that can't happen by ideological definition, so science must be wrong.

I actually had a comment on this picked up by Paul Krugman, my claim to fame, at:

http://krugman.blogs.nytimes.com/2010/06/14/antipathy-to-low-rates/

Posted by: RichardHSerlin | November 10, 2010 6:20 PM | Report abuse

How about evaluating their arguments instead of making baseless personal attacks against those critical of the Fed. That might be a little more constructive.

I suppose the author approves of the Fed's actions over the last few years - buying trillions of toxic garbage from fraudulent bankers to bail them out, giving free money to the bankers to allow them to pay back TARP, creating trillions in new money causing massive price increases in food and energy.

The effort the audit the Fed was bipartisan (over 300 cosponsors in the House), for good reason - the Fed is stealing from the American people and transferring the wealth to politically connected bankers.

I highly recommend watching this vid that explains QE2 - http://www.youtube.com/watch?v=PTUY16CkS-k&feature=player_embedded

Posted by: zf123 | November 13, 2010 1:27 PM | Report abuse

Everything depends on the political course to take, and taking into account not only the foreign policies but also on a local level in the generation of employment and production.

Posted by: debatepopular | November 15, 2010 9:48 AM | Report abuse

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