"Quackery"

May 13th, 2011

It is certainly interesting to find as much shared ground as I have in recent months with writers from The Economist. In a piece this afternoon, the editors note with some alarm that the dominant proposals amongst elected Republicans

aren't just bad ideas, they are disastrously bad ideas:

"Views on the efficacy of countercyclical fiscal policy obviously differ, though prior to the election of Barack Obama Republican legislators had no compunction about voting for stimulus packages (though tax cuts were favoured). The turn against monetary policy is a disturbing and potentially quite dangerous development. Once upon a time, Milton Friedman—a man who basically blamed the Depression on tight money—was the leading economic intellectual of the conservative movement. Now top GOP members can't stop talking about the importance of "hard money" for recovery. Everyone from Rand Paul to Tim Pawlenty to Paul Ryan is on the bandwagon.

This is quackery. It should be noted that mainstream conservative intellectuals strongly back the use of countercyclical monetary policy, and some of the most aggressive critics of too-timid Fed policy—academics like Scott Sumner—have been on the right. Even the punditocracy is not entirely on board with goldbuggery. The National Review's Ramesh Ponurru has been a vocal critic of knee-jerk opposition to Fed policy.

The hard money approach is atrocious economics. I don't think it's outlandish (or even particularly controversial) to say that the biggest difference in the outcome of the Great Recession and the Great Depression was the change in central bank approach to policy. An economic catastrophe was averted. What's more, hard money is a great force for illiberalism. Sour labour market conditions fuel anger at the institutions of capitalism and free markets. And when countries are denied the use of normal countercyclical policies, they quickly reach for illiberal alternatives like tariff barriers.

Antipathy to the traditional role of the Fed is, quite simply, one of the worst intellectual developments to occur in either major party in recent memory. It's distressing that it's been so little remarked upon." EMPHASIS OURS

When the core economic solutions offered by the elected Republican leadership are at odds with both Paul Krugman and the editorial board of The Economist, it is time to stop taking them seriously altogether.