DOES MCCAIN UNDERSTAND THE FED?…. When it comes to demonstrating a working knowledge of modern economics, John McCain has had a very bad week. His comments in Wisconsin yesterday on the Federal Reserve, however, left more people than usual scratching their heads.
“[T]he Federal Reserve should get back to its core business of responsibly managing our money supply and inflation. It needs to get out of the business of bailouts. The Fed needs to return to protecting the purchasing power of the dollar. A strong dollar will reduce energy and food prices. It will stimulate sustainable economic growth and get this economy moving again.”
This is odd for a variety of reasons. The first problem that came to my mind is the odd disconnect between McCain railing against Fed bailouts now, after spending a whole lot of time endorsing a series of Fed bailouts. (In this case, McCain was against the bailouts, before he was for them, before he was against them. That’s quite a feat.)
But let’s also not forget the approach to economics McCain took is also completely bizarre. As Brad DeLong explained, “Since before 1844 central banks have been in the business of managing financial crises. That’s what they do. Milton Friedman is spinning in his grave. The prevention of large-scale bank failures — ‘bailouts,’ in McCain’s terms — is an essential part of responsibly managing the money supply. John McCain does not know that.”
Mark Thoma added, “And Brad didn’t even note that McCain misunderstands the Fed’s legal mandate. If he did, he wouldn’t say that their job is to protect the dollar.”
Keep in mind, McCain’s odd remarks weren’t just some off-the-cuff gaffe made by a confused candidate, they were in a prepared set of remarks, written by McCain’s staff.
We are, in other words, dealing with a team that simply doesn’t know what it’s doing, and wants to take its knowledge and expertise to the White House.