Chris Hayes, guest-hosting for Rachel Maddow, had a great segment on the hold Senator David Vitters placed on President Obama’s Federal Reserve nominees where he talks with economist Betsey Stevenson. The nominees, Jay Powell and Jeremy Stein, were nominated as a bi-partisan move after Peter Diamond was blocked by the Senate (records have Powell donating to the Romney and Hunstman campaigns in 2011).
Vitters’ reasoning? “I refuse to provide Chairman Bernanke with two more rubber stamps who approve of the Fed’s activist policies.” This is consistent with Richard Shelby, who blocked Nobel Prize award winning economist Peter Diamond for the Federal Reserve because of “Dr. Diamond’s policy preferences…He supports QE2…He supported bailing out big banks during the financial crisis.” Republican Senators are giving themselves a de facto seat on the FOMC, and they are casting multiple votes against further monetary easing, without being held accountable for their logic or the subsequent results.
Here’s an important point on how far to the right conservatives have moved on monetary policy. The natural way reporters cover this is to note that the back-and-forth blocking of Federal Reserve nominees have been escalating for several years, especially since Democrats blocked Republican-nominee Randy Kroszner. Indeed Shelby notes in his letter that “For those who say that policy preference should not be considered, I will only point out that the re-nomination of Dr. Randy Kroszner to the Fed was blocked by the majority party because he was viewed as being too free market.” Democrats blocked conservative, free-market Randy Kroszner’s nomination to the Federal Reserve, and so the Republicans are going to block those who support QE2.
But here’s the funny part (and I’m cannablizing one of my posts, which lays out the case in more detail): Randy Kroszner supported QE2. He urges people to seriously consider QE3. To give you a sense of how off-center the Republican Party has gone in terms of the economy, if Kroszner was to show up as a nominee from President Obama for the Federal Reserve tomorrow the conservatives in the Senate would block him because of his policy preferences.
Here’s Kroszner, in January 2011, saying: ”I think [QE2] was the right policy when they put it forward. I think the right policy now, and I think the data has been very much supportive of what the Fed’s been doing…It depends on where we are four or five months from now. If the unemployment rate has not ticked down at all, if we haven’t seen a little bit more job creation, then of course the Fed will have to see if it needs to do more support [with QE3].” That now appears to be sufficient to get blocked by the conservatives in the Senate.
Even better, Kroszner spent March 2011 arguing not only that inflation wasn’t spinning out of control but the real threat was Japanese-style deflation. Bloomberg TV, March 2011: “It’s hard to see a lot of inflation pressures right now. If you look at the recent numbers that came out on inflation just earlier this week, the core rate, stripping out food and energy, is less than 1%. That’s dangerously close to Japan-style deflation problems. An even the headline rate, which includes food and energy is less than 2%. So we aren’t seeing enormous inflation pressures right now…inflation is well-anchored.” The real threat is not inflation but Japan-style deflation…it’s like you are reading a Krugman column.
(For fun, here’s Kroszner saying that even glancing at the evidence shows that the Community Reinvestment Act didn’t cause subprime lending: “the very small share of all higher-priced loan originations that can reasonably be attributed to the CRA makes it hard to imagine how this law could have contributed in any meaningful way to the current subprime crisis.” Given how important that the “CRA -> Crisis” argument is to think-tank based conservative intellectuals, Kroszner is practically a socialist in the political landscape.)
There is no neutral in monetary policy. If Republicans in the Senate think that the Federal Reserve is doing too much, then they think the Federal Reserve can’t accomplish anything, or that unemployment is too low or they think that unemployment should not come down because it would get in the way of other political projects – from passing the Ryan plan to taking the Senate as a result of a weak economy. Some people on the right are explicit about the third – “The more we offer accommodative monetary policy, the less incentive they have to pull their socks up and do what’s right for the American people,” was the argument Richard Fisher used for dissenting. I wish more would just come out and say that.