Matt Yglesias echos a reader’s concern about Occupy Wall Street lining up with “End the Fed” rhetoric driven by the Paul camp (“Occupy Gainesville Facebook page is currently full of posts about the evil of fractional reserve banking, the danger of inflation, & other such Ron-Paulishness”), and wonders what can be recommended to get people interested in monetary policy and the Fed.
I’d really like this audience’s reactions, particularly when it comes to blog posts, videos, online materials or other general thoughts. My friend Andrew Bossie is doing some teach-ins on monetary policy at the Occupy Wall Street New York, and we have been thinking of ways to formalize it for the audience – there’s a huge demand from people who want to learn.
For online stuff that comes to mind, there’s Matt’s article and Paul Krugman on the babysitters’ co-op. I really like Chris Hayes’ paper from early on, The Case for Inflation, which places it against the Washington Consensus of the past 30 years and the changing battle of ideas over economics. At one of the Federal Reserve panels we did, Josh Bivens of EPI outlined Five Ways to Determine a Strong Liberal Member of the Federal Reserve, which I thought was very helpful.
One thing I’ve noticed after talking with people on this topic is that it is important to split the Federal Reserve as financial regulator from Financial Reserve as monetary policy. For some people trying to figure it out, they hear Federal Reserve and they immediately think financial sector bailouts. They think “monetary policy” is some version of AIG bonuses, the New York Fed hand-waiving bad books, Alan Greenspan ignoring FBI investigations and consumer reporter on fraud in the subprime market, and TARP. They think regulatory capture, etc. And they are right to be pissed about all these things in the financial markets.
But it is important to explain that this is very different from monetary policy. Indeed, paying interest on reserves, opportunistic disinflation and an indifference to high unemployment – the things that the left-liberals concerned about monetary policy bring up as major problems – are things that Wall Street likes, or at least doesn’t mind at all.
In fact, the biggest attacks from left-liberal spaces has been to collapse this distinction, and make it seem that monetary policy is only about goosing banker bonuses. From Matt Taibbi (“big banks and Wall Street speculators are real, immediate beneficiaries of [QE2]“) to Shahien Nasiripour (“When it comes to helping Wall Street and corporate America, the Federal Reserve spares no expense,” with Ryan Avent response), many criticism of QE2 have gone along these lines. The idea that tight money hurts creditors and rentiers and loose money helps them is a new, incorrect, one. Nobody seemed to report that the AFL-CIO supported QE2 and additional monetary expansion.
It is entirely consistent to support “Audit the Fed” legislation and expansive monetary policy like QE2 and beyond (Dean Baker, for one, does). And the transparency argument over the bailouts should carry over to transparency on monetary policy. The biggest question mark I have right now is whether or not the Federal Reserve will kill any recovery – especially if driven by new fiscal stimulus - if inflation goes above 2%. How much do they emphasize their obligation to maximum employment versus inflation? These are incredibly important considerations.
More generally, James Kwak’s friend wondered “about the Tea Party: when has there been a populist movement that wanted to make money harder?” Indeed up until the Tea Party, all populists movements wanted looser money. Here’s Father Coughlin, the Glen Beck of the Great Depression, who was a monster but was right on monetary policy:
Many factors had conspired to create the Great Depression, Coughlin explained, but one loomed larger than all the others: a “cursed famine of currency money” ... Denouncing America’s rigid adherence to the gold standard (“Wedded to the false philosophy that gold is the value and not the measure; that it is the master and not the servant ... we have been overwhelmed by catastrophe”), he urged immediate revaluation – a doubling of the price of gold per ounce from the present level of $20.67 to $41.34. The government would thus be able to issue twice as much currency on the basis of its existing gold supply. Revaluation would encourage, indeed, almost force the wealthy to put their “hoarded dollars” back into circulation; it would enable debtors to bear mortgages and other loans more easily; it would promote peace by making America’s allies better able to repay their wartime debts; and, most important of all, it would stimulate the economy sufficient to restore jobs and create prosperity for all.
Who has a very clear argument for a general audience (key on general audience) on why the Gold Standard is a bad idea? There’s a Breakdown episode with Liaquat Ahamed about it that was good, Yglesias had a post, Josh Barro had an article and David Frum has several keeping their right flank in check.
What else would you emphasize?