Mitt Romney's Bizarre Attack on the Fed

Do Republicans think Milton Friedman was a big government liberal?


How much can you get wrong in just three sentences? A whole lot, it turns out.

Consider Mitt Romney's most recent fundraising email titled "Another Bailout?!?" -- not exactly a policy document, but still -- about the Fed's latest round of quantitative easing. See if you can spot anything that might correctly be called "correct".

Barack Obama is at it again -- spending your tax dollars to bail out his failed economic plan. It's more of the same from an out-of-touch president with no plan to fix our economy and put Americans back to work. 

This past week, the Federal Reserve announced it would print $40 billion every month to prop up this administration's jobless recovery -- that's money we can't afford for jobs we will never see.

Okay, the Fed did announce that it would buy $40 billion of mortgage bonds a month until unemployment starts coming down -- which is, more or less, "printing" money -- but the rest is nonsense.

First, Barack Obama had nothing to do with the Fed's decision to do QE3. Only the Fed had anything to do with the Fed's decision to do QE3. It's independent.

Second, the Fed isn't spending tax dollars. As Team Romney acknowledges two sentences later, the Fed is printing money to buy bonds.

Third, this isn't a bailout. It's not even clear who is supposedly getting "bailed out". Is it the government? We can already borrow for basically nothing for 20 years. Is it the banks? The Fed is just swapping one interest-bearing asset for another when it buys long-term bonds and gives the banks more reserves.

Fourth, QE3 isn't more of the same, because it's a new kind of open-ended commitment from the Fed. That's why markets are excited.

Fifth, President Obama actually does have a plan to get the economy moving again. It was called the American Jobs Act -- remember it, from last year? -- and it died where all good ideas go to die: Congress. More specifically, Republicans on Capitol Hill killed it, and then they turned around and blamed Obama for the weak economy. It was a neat political trick, but it meant we didn't get the 2.1 million additional jobs that Macroeconomic Advisers estimated the bill would create.

Sixth, there's no way we can't afford printing money, because ... we're printing it. Taxes aren't going up. Neither are deficits -- the opposite, actually. As Ben Bernanke pointed out in his press conference, the Fed expects to make money from its bond-buying, which it is then legally required to remit to the Treasury. In other words, Fed policy is reducing the deficit -- by $76.9 billion in 2012 and $78.4 billion in 2011.

That's a lot of errors crammed into 73 words. But there's a bigger error here. That's Romney's approach to monetary policy. He's repudiating a generation of conservative economic thought. It used to be that conservatives championed monetary demand management as the superior alternative to fiscal demand management. It was an intellectual battle between Milton Friedman and John Maynard Keynes -- and Friedman very much seemed to carry the day. Economists from both sides of the aisle agreed that the Fed rather than Congress should manage the business cycle, unless short-term interest rates were stuck at zero, like they are now. As Paul Krugman has pointed out, this was the mainstream Republican position as recently as 2004 -- current Romney adviser and former Bush adviser Greg Mankiw wrote then that "aggressive monetary policy can reduce the depth of a recession". (To his credit, Mankiw has been a voice of reason on the right about the Fed in recent years). But that is an idea non grata among conservatives nowadays. Paul Ryan's hard money views have won the day instead. Inflation is always just around the corner -- never mind that it isn't -- jobs be damned.

Don't believe me? Here's something to remember: Bernanke himself is a Republican. He's become such a political punching bag for the right that it's easy to forget, but he hasn't done anything that Milton Friedman wouldn't have approved of.

The question is if Mitt Romney does too, or if he means what he says. A magic eight-ball might be a better guide there than an Etch A Sketch.