Being something of a polemicist, in my tweets and headlines, I’ve typically characterized the GOP leadership letter on monetary policy as asking the Federal Reserve to keep unemployment high. Of course what the letter actually says is that monetary stimulus would fail to reduce unemployment. This is mistaken. There are two conditions under which monetary action could fail to reduce unemployment. One is that a central bank might do something that fails to stimulate, the other is that the economy might already be operating at full employment. Given that GOP congressional leaders clearly don’t believe we’re currently operating at full employment, the claim that “we have seen no evidence that further monetary stimulus will create jobs” is like saying they haven’t seen evidence that 2+2=4.
For all X, if X is stimulus and the economy isn’t at full employment, then X creates jobs.
Optimistically, these people are just being cynical. If we’re lucky, in other words, all that’s going on here is that these guys are indifferent to short-term human suffering. They want the economy to suffer for the next year because that will put Mitt Romney or Rick Perry in the White House at which point the Fed can step on the gas and they’ll claim conservative policies ended the recession. My fear is that this isn’t what’s happening. Most human beings have a limited capacity for cynicism and instead engage in “motivated reasoning.” Republicans sincerely believe that Barack Obama’s tax and regulatory policies are bad for America, and also recognize that poor short-term economic performance will likely lead to his defeat in 2012. Therefore they manage to persuade themselves that good ideas are actually bad ones. The risk is that having engaged in this motivated reasoning they’ll stick with it and in office actually implement policies the policies they claim to believe in, namely a reckless combination of smaller short-term fiscal deficits, larger long-term fiscal deficits, tight money, and a strong dollar. The result would be a new depression that will make the past 18 months look like a boom.
I’m an optimist by nature, so my instinct is to assume cynicism but the evidence makes me worry that this stuff is sincere.