Monetary Mysteries

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A bunch of conservative economists and political strategists have signed a letter saying they “believe the Federal Reserve’s large-scale asset purchase plan (so-called ‘quantitative easing’) should be reconsidered and discontinued.” That much is clear. Not clear is why they think that. This is their stab at an explanation:

We subscribe to your statement in the Washington Post on November 4 that “the Federal Reserve cannot solve all the economy’s problems on its own.” In this case, we think improvements in tax, spending and regulatory policies must take precedence in a national growth program, not further monetary stimulus.

This is like telling the head of the Detroit Department of Sanitation that you oppose his effort to improve trash collection in the city because Detroit’s problems can’t be solved by trash collection alone and improved public safety ought to take precedence over picking up the garbage. The guy’s in charge of picking up the garbage and he’s supposed to do the best darn job of it that he can.

In much the same way, Ben Bernanke and his colleagues on the Federal Reserve Open Market Committee are supposed to make monetary policy. Ideally, they’ll make monetary policy correctly. Obviously the Fed can’t solve all of America’s problems. But it should solve the problems that it can solve.

Some of these folks may be perfectly genuinely hard money cranks, but the message here if taken literally is quite different. They’re saying the Federal Reserve could alleviate economic suffering, but should avoid doing so in order to squeeze the American people into accepting more rightwing tax and regulatory policies. Then once the fiscal and monetary measures Doug Holtz-Eakin and Bill Kristol like are implemented, the Fed can perhaps relent and allow the economy to grow.