Some conservatives are attacking current U.S. monetary policy as being too expansionary, as likely to lead to excessive inflation and debauchment of the currency.   The Weekly Standard is promoting a letter to Fed Chairman Ben Bernanke that urges a reversal of its policy of QE2, its new round of monetary easing. The letter is signed by a list of conservatives, most of whom are well-known Republican economists, some associated with political candidates.  Apparently the driving force is David Malpass, who was an official in the Reagan Treasury, and he is taking out newspaper ads later this week.  This follows similar attacks on the Fed by politicians Sarah Palin, Mike Pence, and Paul Ryan. 

     If the National Journal, Wall Street Journal and Politico are right that the Republicans are trying to stake out a position that Democrats are pursuing inflationary monetary policy, they are on shaky ground.   I will leave it to others to make the important point of substance:  the risk of excessive inflation is low now compared to the risk of an alarming Japan-style deflation, with the economy having only begun to recover from its nadir of early 2009.   Or to acknowledge that Quantitative Easing is only a second best policy response to high unemployment.    (Fiscal policy would be much more likely to succeed at this task, if it were not for the constraints in Congress.)

     I will, rather, respond to the political component of the National Journal’s question by pointing out some insufficiently understood history:

1. Republican President Nixon successfully pushed Fed Chairman Arthur Burns into an excessively easy monetary policy in the early 1970s — leading to high inflation which the White House tried to address with wage-price controls.  Nixon, of course, also devalued the dollar, and took it off gold, thereby ending the Bretton Woods system of fixed exchange rates.
2. Republican Presidents Ronald Reagan and George H.W. Bush tried aggressively to push Fed Chairmen Paul Volcker and Alan Greenspan into easier monetary policy, especially in election years.  This is documented in Bob Woodward’s 2000 book Maestro.   The White House succeeded in making life unpleasant enough for inflation-slayer Volcker that he eventually declined to be reappointed, prompting Treasury Secretary James Baker to exult “We got the son of a bitch!” (p.24).  Baker is also the man usually credited with the Plaza Accord and the associated 50 % depreciation of the dollar from 1985 to 1987.
3. Democratic Presidents Jimmy Carter and Bill Clinton are the two presidents in the last four decades who scrupulously refrained from pushing their Fed Chairmen (Volcker and Greenspan, respectively) into inflationary monetary policy.  
4. Under Republican President G.W.Bush, monetary policy once again became excessively easy, during 2003-06, contributing substantially to dollar depreciation, the housing bubble and the subsequent financial crash.

     Thus if the other party were to accuse Democrats of pursuing excessively inflationary monetary policy, it would be akin to them accusing Democrats of pursuing excessively expansionary fiscal policy.    Perhaps such accusations will strike some who don’t pay close attention as superficially plausible, even after all these years.  But they nonetheless fly in the face of history.   Another case of the pot calling the kettle “red.”   Yes, I know, the usual saying is about the color black.  But red is the color of deficits, overheating, … and Republicans.

    I document the history in “Responding to Crises,” Cato Journal 27, 2007. 

Floyd Norris notes in the New York Times (Feb. 9, 2008, p.B3),“George W. Bush is in line to be the first president since World II to preside over an economy in which federal government employment rose more rapidly than employment in the private sector.”    It is another bit of confirmation of the truth behind a comment that “Joe S.” posted in response to my blog entry of February 6 (“Reagan and Stalin”): “What, pray tell, does the Republican Party have to do with conservatism?”  

The liberal and conservative labels are no longer useful.   It’s not that shorthand political labels are never useful; they are, even though individuals resist pigeonholing. 

And it’s not just that these particular words have long since lost their original meanings.   Linguistically, “liberalism” of course was supposed to refer to a philosophy of leaving individuals free from interference by government and other entrenched institutions, while “conservatism” was supposed to mean valuing continuity and stability.   But it is a commonplace that Americans use the word “liberal” to mean the opposite of what it meant in the 19^th century (which is now often called “neoliberal,” for some reason).  

Supporters and detractors alike still considered George W. Bush a conservative, despite the original meaning of the word, when he launched radical departures from longstanding American principles  in the spheres of foreign policy and domestic policy.   The White House has asserted maximal political powers for the executive, and has used these powers to enact virtually unprecedented levels of interventionist policies, ranging from Iraq to domestic citizens’ right to privacy.   

But people still seem to think that the Bush Administration also stands for conservatism in the economic sphere as well.   Or some think that President Bush may no longer stand for economic conservatism, but that other Republican politicians do.   I would contend that, not just George W. Bush, but also Richard Nixon, Ronald Reagan and (to a lesser extent) George H.W. Bush, all — in sharp distinction from their conservative rhetoric – in practice have been interventionist.  They have all wandered, far from the principles of good neoclassical economics, and far from from the principles of small government and laissez faire.  How far?   Farther than did, for example, Jimmy Carter and Bill Clinton.  

The criteria are:
(1) Growth in the size of the government, as measured by employment and spending.
(2) Lack of fiscal discipline, as measured by budget deficits.
(3) Lack of commitment to price stability, as measured by pressure on the Fed for easier monetary policy when politically advantageous.
(4) Departures from free trade.
(5) Use of government powers to protect and subsidize favored special interests (such as the oil and gas sector, among many others).   

Documentation that Republican presidents have since 1971 indulged in these five departures from “conservatism” to a greater extent than Democratic presidents can be found in some writings of mine, listed below.   The name I would give to this set of economic policies, as well as to the parallel abuses of executive power in the areas of foreign policy and domestic policy, is neither “liberal” nor “conservative” but, rather, “illiberal.”

Original:     “Republican and Democratic Presidents Have Switched Economic Policies,” in Milken Institute Review, vol. 5, no.1, 1st Quarter, 2003, pp.18-25.

Shortest:    “Trading Places” , Financial Times, Sept. 13, 2002.

Most recent: “Responding to Crises,” for 24^th Annual Monetary Conference, Cato Institute.   Cato Journal vol. 27, no. 2, Spring/Summer, 2007, pp 165-1708.