The GOP vs. the Fed

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Former U.S. Speaker of the House and republican candidate for president Newt Gingrich speaks during the 2011 Republican Leadership Conference on June 16, 2011 in New Orleans, Louisiana.

Which arm of government is most deplored by today’s Republican Party? It might be the allegedly jobs-killing Environmental Protection Agency. Or perhaps it’s the Health and Human Services Department, now tyrannically implementing Obamacare. But moving closer to the top of this list every day is an unlikely suspect: The Federal Reserve.

Speaking in Atlanta this morning, Newt Gingrich became the latest Republican to portray an institution that long guaranteed glazed eyes in dramatic and sinister terms. Gingrich argues that the Fed is a secretive, unaccountable institution that recklessly throws around federal money, possibly including to Libya, screwing taxpayers and imperiling the U.S economy along the way. So he’s calling for official audits of Fed activity (long a marquee cause of libertarian Fed-hating hero Ron Paul) and  and for an overhaul of the monetary body’s core mission. A full speech text doesn’t yet appear to be online–although Gingrich posted a Fed-bashing YouTube video yesterday–but here’s an advance excerpt:

The Fed currently has a dual mandate: dollar stability and full employment.  They are incompatible. As part of a thorough reappraisal of the role of the Federal Reserve System, Congress should immediately return the Fed to its original sole focus on dollar stability.

Not long ago, such a direct assault on the Fed–when Alan Greenspan was a kind of papal figure in Washington–would have sounded radical. But now Gingrich is offering something like a conventional Republican position. It holds that the Fed’s efforts to improve the U.S. economy do more harm than good, risking an inflationary bubble and undermining the dollar in the name of growing the economy. Leading Republicans like Rep. Mike Pence of Indiana and Senator Bob Corker of Tennessee have called for narrowing the the Fed’s mission to dollar stability. The columnist George Will recently opined in favor, saying that the goal of maximizing employment has led Fed officials to think of themselves not as bankers but as “wizards of societal control.”

Several other current and potential GOP candidates have turned the Fed into a nefarious stump-speech character. Sarah Palin denounced the Fed’s latest round of bond-buying “quantitative easing” in November, arguing (misleadingly) that it was creating high inflation, and alluding to hyperinflation in pre-Hitler Germany. Tim Pawlenty has called for the ouster of Fed chairman Ben Bernanke and backs end to the dual mandate. Michele Bachmann called quantitative easing “a huge mistake” and supports Fed audits. And even Mitt Romney, who in late 2009 said Bernanke was doing “a good job” now says he should go.

But while the right rails that the Fed is doing too much, the left has groused for months that it’s not doing enough–that an overstated fear of inflation has made the Fed timid about addressing America’s ongoing unemployment crisis. (Call it the Bernanke-san argument.) Liberals not only support the Fed’s dual mandate, they want to see it tilt even more to maximizing employment–even if it means a greater risk of inflation. And it’s not only liberals who like the dual mandate, by the way. None other than Ayn Rand enthusiast Alan Greenspan has said that the goals of low inflation and high employment are “interconnected” (albeit on the grounds that low inflation is the best path to high employment).

In one of the most important and under-appreciated developments in American politics, then, a longstanding consensus about the role of the Fed has been broken. There was a time when it was almost solely the fringy likes of Paul and his acoltyes who believed the Fed was one of America’s most dangerous institutions. But thanks to the rise of Paul–and of the libertarian, anti-institutional Tea Party he helped to create, today it’s simply mainstream Republican dogma.

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