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A Foray into Monetary Policy and Tangentially Related Speculations

Tuesday I wrote an Atlantic column about the bizarre situation that the Federal Reserve is in. Ordinarily, we think central bank independence is important because it permits the bank to take unpopular, anti-growth steps when the political branches of government want popular, pro-growth steps. But today we’re in Bizarro world: the political branches are intent on strangling the economy, so the Fed should be ignoring the political winds and stimulating the economy—especially since it’s clear that fiscal policy is off the table. Rick Perry just provided a last-minute dose of color.

Obviously Perry and the Republicans don’t want the Fed to stimulate the economy because they don’t want the economy to recover before the 2012 elections. But I think there’s something deeper here, which Mike Konczal gets at in this great post. Konczal summarizes the nineteenth-century gold-standard ideology this way: “Paper money decreases the power of the husband over his wife and the father over his family, loosens the natural leadership that serves as the best protection against ‘effeminate’ manners, and gives us a democracy without nobility.”

For policy wonks like me, inflation (short of hyperinflation) is just a transfer of wealth from creditors to debtors and hence a way to help bring overleveraged balance sheets under control and get people spending again.* But don’t take it from me; take it from Ken Rogoff, who is nobody’s idea of a socialist. I think Olivier Blanchard, chief economist of the IMF, has also said that in today’s world inflation should be 4 percent instead of 2 percent.

But for Rick Perry and people like him, there’s something immoral and unmanly about inflation and about paper money. He can stand there telling people that monetary expansion is devaluing the dollars in their pockets, and those people will nod their heads, even though (a) it isn’t—check the inflation figures—and (b) many of them are net debtors and thus stand to gain from a little more inflation. The basic problem is that Rick Perry and his audience (and probably many other people) see economic questions in primarily moral terms, and in their moral universe gold is better than paper and deflation is better than inflation. (That’s the obvious inference if you say that inflation is bad.)

I’m obviously not the first person to think of this. It’s the core of George Lakoff’s book Moral Politics, which is a great description of the conservative worldview combined with an unconvincing description of a liberal worldview that he wishes existed but I think doesn’t exist.

But I think it’s particularly relevant in light of yesterday’s op-ed by David Campbell and Robert Putnam in the Times. Campbell and Putnam use interviews going back to 2006 to see what people ended up joining the Tea Party. And it isn’t new entrants to politics, or libertarians, or people with a thing for the Constitution. Using pre-Tea Party data, the predictors of becoming a Tea Party supporter include being Republican, political activism (contacting government officials), being white, “a low regard for immigrants and blacks long before Barack Obama was president” (even compared to other white Republicans), and wanting more religion in politics. (The best predictor is being a Republican; the second best is wanting more religion in politics.)

So if the Tea Party is basically the Christian Coalition all over again, why does it fly the banners of libertarianism, strict constructionism, hard money, and low taxes? One explanation is the billionaire puppet-master story, best exemplified by Jane Mayer’s story about the role of the Koch brothers and other traditional Republican elites in the rise of the Tea Party. I’m sure there’s something there. But another explanation is that the Tea Party, like the old religious right, is a movement based on a sense of moral outrage, and the style of the Tea Party appealed to a certain segment of the population. If you think the world went all wrong in the 1960s and abortion should be illegal and there what we need is prayer in public schools, you probably also think the Constitution must be eternally pure and gold is better than paper money—even if it’s not in your own economic interests. (Just like you probably don’t like distributing condoms to teenagers, even if it is an effective way to reduce the number of abortions.)

And this is why Rick Perry can go around spouting nonsense and still be a serious contender for the presidency.

* For the record, I’m a net creditor—I have money in bond funds and TIPS and no debt to speak of—so I stand to lose from higher inflation.

This post originally appeared at The Baseline Scenario and is reproduced here with permission.

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