Paul Ryan’s Monetary Economics

Paul Ryan says that “monetary policy was always my first love” but he doesn’t seem to know very much about it:

“There is nothing more insidious that a government can do to its people than to debase its currency,” Ryan said.

Just as harmful, Ryan warns, is that the proliferation of newly printed dollars inevitably unleashes inflation and throws the economy out of kilter in other ways.

Inflation is a killer of wealth. It wipes out the middle class. It eviscerates the standard of living for people who have retired or are living on fixed incomes,” he said. “Name me a nation in history that has prospered by devaluing its currency.” […]

To Ryan, the root of the problem is the Fed’s dual mandate, which calls on the central bank to promote employment as well as throttle inflation. Ryan said he has pushed for years to rewrite the Fed’s statutes in favor of a single mandate to control inflation and preserve the dollar as a store of value, making the Fed more like the European Central Bank.

Fighting inflation and boosting employment often are diametrical goals, he said.

“Basically the Fed is driving a car with two feet, one on the brakes and one on the gas pedal, and it’s a real jerky ride,” he said.

So to sum up, right now inflation is running lower than it was in the 1990s and 2000s. What’s more, in the 1990s and 2000s it was running lower than it was in the 1980s. And what the Fed is trying to do is to bring inflation back not to the levels of the Ronald Reagan Era, but to the rate we enjoyed in the 1990s and 2000s. Maybe Ryan’s a madman rather than a hypocrite and he did in fact spend the late-80s running around the country terrified of inflation:

Have countries ever experienced a post-recession return to prosperity in part through currency devaluation? Sure they have. Throughout the Great Depression countries found that only abandonment of the gold standard and currency devaluation allowed for growth to return:

In terms of targeting, Ryan seems to be equivocating between two proposals, one irrelevant and the other insane. One interpretation of what he’s saying is that instead of targeting 2 percent inflation and also targeting full employment, the Fed should just focus on delivering 2 percent inflation. I think there’s a decent case to be made for that. But it’s irrelevant. Inflation is below 2 percent right now and has been below 2 percent for years. If the Fed is targeting inflation alone it should engage in monetary expansion. If the Fed is targeting employment alone it should engage in monetary expansion. And if the Fed is targeting both prices and employment, then it should engage in monetary expansion.

Now Ryan’s other idea here is quite different. At various times he seems to think that the whole premises of modern monetary policy are mistaken. A more expensive dollar is always a better dollar, and lower inflation is always better than higher. And if we wanted it to, the Fed could simply refuse to engage in “proliferation of newly printed dollars.” The population would grow, the economy would grow, and the quantity of dollars would stay fixed. Consequently, each dollar would increase in value and anyone currently sitting on a stockpile of dollars would benefit enormously. Unlike his target nonsense, this would genuinely be a different policy. But at the same time it would be an economic catastrophe. With the supply of dollars are unable to increase in response to growing demand for dollars, we’d see a shortfall in the demand for everything else. Americans would have the ability to make more stuff and perform more services, but demand for goods and services would be too low to employ everyone. Instead of goods and services, people would want more money. And the Fed would refuse to provide it. So we’d drift along in mass unemployment indefinitely.