Deflation By Contagion

People often ask why presidential candidates like Ron Paul stay in the race when they haven’t a snowball’s chance of victory. Some (arguably Newt Gingrich) may just adore the sound of their own voices echoing on television every night, or (also like Gingrich, or perhaps Herman Cain before he crashed and burned) are using the publicity to hustle books and videos or secure media gigs. It’s also sometimes said candidates aim at securing leverage to affect their party’s platform or campaign message.

But as Ramesh Ponnuru explains at NRO today, Ron Paul doesn’t simply have a pious aspiration of exerting leverage over Republican policy thinking down the road: he’s already won it by affecting the way other Republicans think and talk about monetary policy.

Republicans and conservatives have started to take a much harder line against inflation and a Federal Reserve they consider too inclined toward monetary expansion. In the early 1980s, supply-siders would sometimes criticize Paul Volcker’s Fed for fighting inflation too vigorously. Few on the right say anything similar today.

This rapid shift in positions has several causes. The view that overly loose Fed policy contributed to the housing bubble of the last decade became the conventional wisdom. The massive expansion of the money supply in the wake of the financial crisis alarmed many observers. But the shift in position was also a testament to Representative Ron Paul’s dogged campaign against the Fed and its allegedly inflationary ways, and for a gold standard. If not for the Texas Republican — who has long been the congressman most interested in monetary policy, and now chairs the subcommittee with jurisdiction over it — it is hard to imagine that Newt Gingrich would have proposed a new commission to examine the gold standard, or accused Fed chairman Ben Bernanke of being “the most inflationary, dangerous, and power-centered chairman of the Fed in the history of the Fed.”

The real problem, suggests Ponnuru, is that Republicans as a whole have no particularly coherent view on monetary policy, but rather a set of impulses or prejudices in search of a coherent view. Paul knows exactly what he thinks, and has used this campaign to relentlessly promote it. And while Republican pols for the most part haven’t leapt on board Paul’s demands for a return to a Gold Standard, they have, by contagion, gotten into the habit of favoring generally deflationary policies.

Many Republicans tell pollsters that they will not vote for Paul because of his foreign-policy views. Nobody says that his monetary views are a deal breaker; no pollster even bothers to ask. There is no organized opposition to Paulite views on money within the Republican party or conservative movement, and the people who hold those views hold them intensely. Thus the progress of those views…

The next Republican president’s appointees to the Fed will not insist that the money supply never increase. Most of the economists in his administration will not be supporters of the gold standard, or opponents of the Fed’s existence. What Paul has accomplished is to set a tone for the economic-policy debate on the right.

That’s quite an accomplishment, in a negative sense, when you think about it. Having already abandoned the long-held bipartisan consensus favoring Keynesian stimulus measures during a recession, GOPers under Paul’s influence have now overwhelmingly become hard-money fans who think the remote possibility of inflation trumps any interest in encouraging growth or full employment. It’s an unfortunate development among many in the recent evolution of the conservative movement and the Republican Party.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.