Paul Krugman: The GOP Candidates' Crackpot, Ayn Rand-Inspired Economic Theories
Crackpot economic theories are now the norm in the Republican party, as we saw in Tuesday's debate. Huge tax cuts are just the beginning and are sort of rational when you consider how many hugely wealthy donors support GOP candidates. But what about the nuttier, "hard money" ideas espoused by the likes of Ted Cruz, Paul Krugman wonders in Friday's column.
"Ted Cruz demands a return to the gold standard. Jeb Bush says he isn’t sure about that, but is open to the idea. Marco Rubio wants the Fed to focus solely on price stability, and stop worrying about unemployment. Donald Trump and Ben Carson see a pro-Obama conspiracy behind the Federal Reserve’s low-interest rate policy," he writes. "And let’s not forget that Paul Ryan, the new speaker of the House, has spent years berating the Fed for policies that, he insisted, would 'debase' the dollar and lead to high inflation. Oh, and he has flirted with Carson/Trump-style conspiracy theories, too, suggesting that the Fed’s efforts since the financial crisis were not about trying to boost the economy but instead aimed at 'bailing out fiscal policy,' that is, letting President Obama get away with deficit spending."
Once upon a time Republicans were a more reasonable bunch who followed the ideas of Milton Friedman, an economist who believed easing money restrictions could help fight a depression. Even George W. Bush, by appointing Ben Bernanke, seems reasonable in retrospect. No more. Krugman writes:
Republicans have turned their back on Friedman, whether they know it or not, and draw their monetary doctrine from “Austrian” economists like Friedrich Hayek — whose ideas Friedman described as an “atrophied and rigid caricature” — when they aren’t turning directly to Ayn Rand.
This turn wasn’t driven by experience. The new Republican monetary orthodoxy has already failed the reality test with flying colors: that “debased” dollar has risen 30 percent against other major currencies since 2011, while inflation has stayed low. In fact, the failure of conservative monetary predictions has been so abject that news reports, always looking for “balance,” tend to whitewash the record by pretending that Republican Fed critics didn’t say what they said. But years of predictive failure haven’t stopped the orthodoxy from tightening its grip on the party. What’s going on?
My main answer would be that the Friedman compromise — trash-talking government activism in general, but asserting that monetary policy is different — has proved politically unsustainable. You can’t, in the long run, keep telling your base that government bureaucrats are invariably incompetent, evil or both, then say that the Fed, which is, when all is said and done, basically a government agency run by bureaucrats, should be left free to print money as it sees fit.