Noted monetary economist Sarah Palin has decided to weigh in, through her speechwriter, on the Federal Reserve’s quantitative easing program. And while her speechwriter shouldn’t be taken seriously, what the speechwriter is having her say should be, so to speak.
I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.
The Fed hopes doing this may buy us a little temporary economic growth by supplying banks with extra cash which they could then lend out to businesses. But it’s far from certain this will even work. After all, the problem isn’t that banks don’t have enough cash on hand – it’s that they don’t want to lend it out, because they don’t trust the current economic climate.
And if it doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?
I would love some journalist to give a five-minute quiz to Palin about quantitative easing after this speech. But there’s something larger at work here.
The idea that QEII won’t work isn’t confined to conservatives. Liberal economists have a variety of objections, from the belief that the amount of Treasury purchases are too small to the idea that fiscal stimulus must be combined with this monetary program to raise aggregate demand, to a host of other objections. The argument Sarah Palin’s speechwriter is making, that this will lead to runaway inflation, is wholly unsupported by reality, since we’re at greater risk of deflation at the moment. But because Bernanke has responded to this argument, he’s handcuffed his own policy. So part of this is to ensure a poor economic recovery on a Democratic President’s watch.
But Sarah Palin’s speechwriter has more at work here. There’s plenty of broad agreement on both sides of the aisle that the Fed has failed at its job over the last decade or so. They may believe it for different reasons, but the left-right agreement is substantial. Moreover, the Federal Reserve is not well-liked by the public. Palin’s speechwriter is capitalizing on this backlash against elite monetary policymakers, a backlash that is actually deserved, if not for the reasons her speechwriter suggests. And the speechwriter will have a lot of company. Fed hater Ron Paul will run the Subcommittee on Domestic Monetary Policy and Technology in the House Financial Services Committee starting next year, and you can bet he’ll attack the Fed with ferocity from that perch.
Palin’s speechwriter is setting up her client as the heir apparent at the national level to Paul’s goldbuggery, as well as kneecapping the Fed on inflation and profiting from an anti-elite resentment strategy. That’s the larger goal of this speech.