In the years since the financial crisis, Republican politicians have increasingly embraced a “hard money” critique of the Federal Reserve.
They’ve warned that its policies are too loose and dangerously inflationary, even as inflation has stayed well below historical levels. Now some conservatives are arguing that criticizing loose money should be a more prominent part of their case to voters. It’s a winning issue, they say, and Republicans should make the most of it.
They’re wrong on both counts.
A conservative group called American Principles in Action laid out the premise in a recent report. The chief obstacle to Republican political success, the report said, isn’t the party’s stance on social issues such as abortion and gay marriage but rather its economic agenda. It puts too much focus on job creators “and too little on middle-class workers and wages.”
And the problem isn’t merely rhetorical: The policies the party is advancing don’t address voters’ chief economic concerns. “Rising prices,” the group points out, are high on the list of those concerns. In exit polls after the 2012 presidential election, prices were voters’ second-biggest economic concern, just 1 percentage point behind unemployment. In the battleground state of Ohio, rising prices topped the list, cited by 41 percent.
This analysis fits easily with the group’s advocacy for a gold standard: Republicans should blame loose money for raising prices for consumers. Maybe they should even blame loose money for enriching the wealthy: Conservative activist Jeffrey Bell, who’s affiliated with the group, argues that it’s a form of “trickle-down economics.”
In the short run, hard-money politics could benefit Republicans. Few voters have strong views about monetary policy, and those who do are generally followers of former Rep. Ron Paul, a gold man. A sustained political campaign also seems likely to convince some people that everything they dislike about today’s economy, from slow growth to high grocery bills, is somehow the Fed’s fault.
But it would be a mistake to read the exit polls as a public demand for tighter money. The report implicitly acknowledges the point: “What voters dubbed ‘rising prices’ is really a declining standard of living.” They’re not so much concerned about the price level as they are about the ratio of their income to the cost of food, energy, health care and college tuition.
Monetary policy can do almost nothing to determine that ratio in the long run. What could make a difference are reforms that make health care and higher education more efficient, an end to the ethanol mandate that makes gas and food more expensive, or tax reforms that promote investment in the U.S. and thus raise real wages. That is, admittedly, a more complicated agenda than just calling for tighter money, and one that requires taking on various vested interests. But it would be a response to voters’ concerns – and one that might actually help them.
A hard-money political strategy also has three risks Republicans should bear in mind.
The first is that it will cost them elite support. Presidential candidates generally like having a lot of mainstream economists endorse them. The vast majority of economists rightly think the gold standard is a terrible idea. That’s true even of the right-leaning ones, and even of the ones who have reservations about the Fed’s quantitative-easing policy.
Second, hard-money politics can make Republicans seem indifferent to unemployment. By law, the Fed must try to keep both inflation and unemployment low. The Republicans’ chief legislative proposal on monetary policy is to have the Fed drop the employment goal and focus single-mindedly on inflation. Bringing more attention to that position isn’t going to make Republicans more popular.
The third and biggest risk is that Republicans would eventually gain power and then impose an excessively tight policy. Errors of this sort have in the past proved disastrous – not only economically but also, for conservatives, politically. Excessive tightness by the Federal Reserve made the New Deal possible in the 1930s. Money was much too tight in 2008, too, and it led to the swollen Democratic majority that enacted President Barack Obama’s health care law. In recent years, deflationary policies have hurt right-of-center parties in Argentina and Sweden as well.
Republicans do need to rethink their approach to economics. Intensifying their already excessive focus on inflation isn’t the way to do it.
• Ramesh Ponnuru is a Bloomberg View columnist, a visiting fellow at the American Enterprise Institute and a senior editor at National Review.