The Presence of Mine Enemies

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Ezra Klein has a column in the Post explaining to ink-on-newsprint readers what blog readers already know, namely that economic performance matters and deficits don’t in terms of determining election outcomes. Indeed, I would add that Larry Bartels’ paper “It Feels Like We’re Thinking” (PDF) offers some provocative evidence that opinions about the deficit (including views as to whether it’s getting bigger or smaller) are determined by views of the president rather than the other way around.

It seems to me that this is one reason why it’s extremely dangerous for Bill Clinton and Barack Obama to have appointed conservative Republicans to run the Federal Reserve. The person holding that job has more influence over short-term economic performance than any other single individual, and the institution he heads has an overwhelming level of influence over the economy. An incumbent running for re-election amidst loose monetary conditions, like George W Bush in 2004, has a giant gust of wind at his back. A quasi-incumbent running for re-election amidst tightening monetary conditions, like Al Gore in 2000, is likely to develop an undeserved reputation as an inept campaigner. A president and a congress who want to try to stimulate the economy through fiscal policy can easily find themselves overruled by a Fed chair who says he’ll respond with higher rates, and a Fed chair who wants to constrain economic policy outcomes can do what Alan Greenspan did in 1993 and offer easy money if and only if elected officials act to curb deficits.

You don’t need to suspect anyone of having corrupt motives or acting on narrow partisan concerns to see that economically literate adherents of different political parties tend to have large and genuine disagreements about what kind of policymaking is most conducive to long-term economic growth. If I were president, I would be extremely eager to ensure that my Fed chair shared my basic worldview. It’s considered common sense that of course a president wants to appoint Supreme Court justices who share his ideas about the constitution, but presidents—or I should say Democratic presidents—don’t seem to see that the same considerations apply to the Fed.