For a while now I’ve felt like I was the only one paying attention to this, so I’m glad that Ryan Avent went to a Paul Ryan presentation and also came away struck by his idea that we should pair recession-inducing spending cuts with recession-inducing monetary policy:
It wasn’t so long ago that both parties supported countercyclical monetary policy. Top economists from across the ideological spectrum—from Milton Friedman to Christina Romer—point to tight monetary policy as a major factor exacerbating and prolonging the Great Depression. Mr Ryan claims he’s worried about inflation. But based on what markets are saying, 10-year expected inflation is just 1.94%. That is, according to the Cleveland Fed, “the public currently expects the inflation rate to be less than 2 percent on average over the next decade”. Mr Ryan said that he wished the Fed would drop its mandate for full employment and focus on price stability. Well, current inflation expectations indicate that tighter policy would maintain inflation below the Fed’s implicit target of around 2%, which is the level of inflation most rich-country central banks have decided is conducive to stable prices and growth.
Fortunately, the chairman of the House Budget Committee doesn’t set monetary policy. But the Federal Reserve Open Market Committee does pay attention to what people are saying about them. And if the only prominent politician in the country who talks about monetary policy is accusing their currently too-tight policy of being too-loose, that doesn’t help. People who know better than Ryan need to step up.