Building on Danny Vinik’s timely point that the interest of “Reform Conservatives” in the use of monetary policy to stimulate the economy has no actual constituency among pols on the Right, Paul Krugman offers another reason this is a policy idea whose time has not come and perhaps never will:
Remember what happened when the Fed began a partial move toward the kind of policy [Reform Conservatives] want: practically the whole Republican establishment began screaming at Ben Bernanke that he was debasing the currency. And surely you don’t think that the failure of inflation to materialize has changed their minds.
And underlying this total opposition to monetary expansion lie two deep forces. First, much of the right is thoroughly committed to the view that bad things only happen because of the government, that the private sector will never have problems if it has low taxes and the security of the gold standard. Paul Ryan is effectively the intellectual leader of the GOP — and he gets his monetary economics from characters in Ayn Rand novels.
Moreover, the Kalecki argument about why business interests oppose activist fiscal policy applies to monetary policy too. If “captains of industry” want the body politic to believe that prosperity depends on their “confidence” — so that any criticism leads to depression — they’re going to hate monetarism as much as they hate Keynesianism, because both imply that full employment depends on policy, not their hurt feelings.
And that’s why the de facto position of the GOP on how to build aggregate demand to undergird economic growth is “it just doesn’t matter.” It’s all about keeping investors happy. The rest of us have no significant role in the economy beyond placating these kind and generous benefactors, beginning with the suppression of any discontent about economic inequality.
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