If he didn't know it already, Federal Reserve Chairman Ben S. Bernanke is learning that no good deed goes unpunished. Bernanke's measured move to bolster the American economy by purchasing an additional $600 billion in U.S. Treasury bonds — an attempt to pump liquidity into the economy — is triggering a backlash from the right.
The central bank's decisions have always come in for their share of ideological bickering, but with President Obama defending Bernanke and with the GOP testing voters' appetite for insurrection, right-leaning economists are making common cause with politicians to use the bond purchase to undermine Democrats as well as the Fed. It's an opportunistic move, one that plays into a broader radical agenda of injecting politics into monetary policy in order to tarnish the Fed's reputation.
An early salvo was a full-page ad in the Wall Street Journal on Tuesday. "The planned asset purchases risk currency debasement and inflation," it read. The sponsoring organization was e21, and the signers included the American Enterprise Institute's Kevin A. Hasett and Peter J. Wallison; the Manhattan Institute's Nicole Gelinas; Weekly Standard editor William Kristol; Michael Boskin, a former head of the White House Council of Economic Advisers; and Amity Shlaes, who wrote a book castigating President Franklin D. Roosevelt's New Deal for worsening the Depression.
On the surface, the content of the letter reads modestly enough as a policy disagreement, but according to a news story about e21, also in the Journal, the group and some members of the GOP want to encourage the new House majority to be "outspoken and unified" on "a sound money policy." Just as the Kristol-led Project for the New American Century once helped lay out the blueprint for the George W. Bush administration's crusading foreign policy, so Kristol's new organization is supposed to lay the groundwork for conservatives of all stripes to return to the economic principles of the Founding Fathers. E21's website is filled with denunciations of Bernanke's monetary policy. It testifies to the rightward march of mainstream conservatives in embracing stances they used to shun.
Among the most prominent Bernanke critics the mainstream is essentially embracing is the libertarian and isolationist Rep. Ron Paul (R- Texas). His views used to be on the fringe, but Paul, now a "tea party" hero, will become chairman of a House monetary committee in January. In books, articles and appearances on Fox News, Paul calls for the outright abolition of the Fed, and from his new perch, he will have oversight of the central bank.
The Federal Reserve was created in 1913 in response to the financial panics of the early 20th century. It issues currency and sets interest rates for banks, balancing the risk of recession and inflation with every decision. It is independent of government, which is why presidents have gnashed their teeth over its policies as they faced reelection. At the same time, the perception that it is an impartial authority devoted solely to guiding the economy is essential to its credibility.
But from the beginning, the Fed attracted a devoted cult of bashers who, like Paul, see it as working against American self-reliance and the free market, and destroying economic growth as it leads to the rise of socialism and, eventually, to tyranny a la Nazi Germany and the Soviet Union.
This is, in fact, the central argument of the once obscure Austrian economist Friedrich von Hayek's "The Road to Serfdom," a book written during World War II as a warning to the Western democracies about the economic underpinnings of Nazism. Glenn Beck, touting Hayek on television, has turned the book into an unlikely bestseller. Paul's office in Congress, which I have visited, is festooned with quotes from Hayekian economists. Paul's book, "End the Fed," calls for a strictly private banking system. If the "big government" Fed is abolished, he suggests, all our economic woes will be miraculously cured.
Most conservatives have had no patience for such views. Neoconservative godfather Irving Kristol declared in 2003 in the Weekly Standard that he felt "impatient with the Hayekian notion that we are on 'the road to serfdom.' Neocons do not feel that kind of alarm or anxiety about the growth of the state in the past century, seeing it as natural, indeed inevitable."