In my own recent friendly open letter to “Reform Conservatives,” I suggested these would-be renovators of the conservative policy tradition were a mite too reluctant to make enemies among the more orthodox members of their “team.” Now Danny Vinik offers an excellent example of a policy proposal that (1) reformicons have in the past embraced, and (2) could give GOPers something they badly need–a short-term job creation strategy.
What’s surprising is that they actually do have an answer for this hole: monetary stimulus. In an article for National Affairs, [Michael] Strain outlined many of the ideas in “Room to Grow,” but he also argued in favor of continued loose policy at the Federal Reserve. “Monetary policy surely offers the best way to boost aggregate demand in the short term,” Strain wrote. “By keeping the federal funds rate at zero and pursuing its long-term asset purchase program (known as quantitative easing or QE), the Federal Reserve has done much to support the economy during the Great Recession.” Strain then runs through a variety of different policies that the Fed could pursue, like allowing for higher inflation, that would boost growth in the short-term and fill the hole in aggregate demand. Douthat has also written in the past in favor of monetary stimulus. Many other reform conservatives have as well.
Which is why it’s strange that the words “monetary policy” never appear in “Room to Grow.” In fact, the Federal Reserve is only mentioned once in the 120-page book. This is undoubtedly a hard issue for reform conservatives. Republicans have been, if not openly hostile, then vehemently opposed to the Federal Reserve’s actions during the Obama presidency. When Fed chair Janet Yellen’s nomination was before the Senate in November, Rubio revealed his inflation paranoia and opposition to monetary stimulus. “Altogether, she has championed policies that have diminished people’s purchasing power by weakening the dollar, made long-term savings less attractive by diminishing returns on this important behavior, and put the U.S. economy at increased risk of higher inflation and another future boom-bust,” he said. In fact, it’s hard to find any Republican in Congress who supports the Fed’s actions.
I’d mention a reason for this allergy to monetary stimulus that goes further than conformism. There is an ancient conservative prejudice in favor of creditors, hard money, and frankly, deflation. It’s the monetary side of the same coin that encourages fiscal austerity policies. And it’s closely related to the idea that the distribution of wealth by markets represents the only moral way to reward work and punish indolence, with monetary policy operating as a break on “unnatural” effusions of economic growth. No wonder it’s a totem “Reform Conservatives” are reluctant to defy.