The Republicans should leave the FED alone

Lately the Republicans could more aptly be called The Opposite of the Democratic Party. They so often seem to define themselves by what they stand against, rather than what they stand for. Some examples:

When the Democrats wanted to extend unemployment benefits because of record breaking long-term unemployment, the Republicans decided that was a bad idea and came up with the notion that extending unemployment benefits somehow causes unemployment.

When the Democrats pursued a policy to protect American depositors from hidden fees and sudden arbitrary rule changes by consumer banks, the Republicans posited that Democrats were forcing banks to raise fees, because now they could no longer make money by punishing careless customers.

When the Democrats attempted to cut taxes for the economic groups most affected by the recession, Republicans claimed that only by additionally cutting taxes for those more or less unaffected by the recession could tax cuts spur investment.

For every move the Democrats have made, Republicans have seen fit to make a diametrically opposed countermove, whether it squares with their stated goal of lowering the deficit or not.

This contrariness can mostly be put down to everyday sleazy politics, but among the latest stances by prominent congressional Republicans lies one of the strangest counterintuitive policy declarations yet.

Senator Bob Corker (R., Tennessee), and Representatives Paul Ryan (R., Wisconsin) and Michael Pence (R., Indiana) have decided that because unemployment remains at record highs and inflation at record lows it is time for the Congress to change the mandate of the Federal Reserve. They want Federal Reserve Chairman Ben Bernanke to concern himself only with combating inflation and let unemployment take care of itself.

This is apparently a reaction to the Fed purchasing (with printed rather than borrowed money) $600 billion in U.S. Treasury securities in a quest to add monetary stimulus to the anemic economy (since with a Republican House of Representatives, more fiscal stimulus seems out of the question).

The three claim to be worried about inflation that might emerge later on. They obliquely site stagflation in the 1970s.

While the 70s are not remembered as the most prosperous time, America and the world in which it operates are in a very different place than they were in the disco decade.

In the 70s as Detroit pumped out unreliable, gas guzzling cars, an OPEC oil embargo raised the price of everything transported, heated, powered and made from oil. Wages remained stuck as prices rose.

But currently, the price of oil has risen and fallen and risen again without a demonstrable effect on inflation. The government has spent $700 billion in fiscal stimulus and unemployment has remained stubbornly high. Since the Fed began adding some of its newly printed $600 billion, the dollar has actually risen in value against other major currencies and inflation has remained at record lows, as have interest rates. As of yet there are no predictions of high inflation by major economists. Actually many economists fear deflation, or falling prices. This is because the usual reason for rising prices, is rising wages and unless you’re a CEO or an investment banker your paycheck has probably not risen for several years. That is if you're lucky enough to have a paycheck.

Which brings us back to the Republican suggestion that it's time to stop worrying about employment and start worrying about inflation, if the Republicans in question are sure of their convictions, they must be very deep economic thinkers to be able to see evidence for inflation that is somehow invisible to other economists.

One wonders what experience in macroeconomic policy the three legislators bring to bear in making such a weighty proposal for fundamental change at the largest and most important central banking institution in the world.

Well…

Senator Bob Corker was a real estate developer in Chattanooga Tennessee, with a degree in industrial management.

Representative Mike Pence was an attorney and talk show host prior to being elected.

Of the three only Paul Ryan has a college-level degree in economics and political science, but his only professional experience after college, besides interning for conservative politicians was three years working in one of the Koch Brother’s libertarian “think tanks.” No investors or businessmen seeking to forecast economic trends has ever sought his advice.

So I think it's appropriate for the Federal Reserve chairman and the American people to ignore their advice.