Do news and history always trump fiction?
Read an “old” newspaper, from the ancient pre-Internet era of December of 1984: “The Reagan Administration is considering a plan to would place the now autonomous US Federal Reserve under some form of administrative control, The US Treasury Secretary, Don Regan, said yesterday.” That was AP wire copy, and the story went national.
Long forgotten today, given the near-hysteria and requisite orthodoxy on the American right that only tight money is sound policy and patriotic, is that the Reagan White House tried to skin Fed Chief Paul Volcker alive back in 1984. And not just Volcker—they wanted to eviscerate the Federal Reserve Board, and shift control of the money supply into the Oval Office. Inflation in 1984 had just dropped under 5 percent, and the Reaganauts wanted the Fed to print a lot more money, and keep the economy flourishing.
Secretary Regan mustered more than a few arguments. “The United States is the only country in the world that has a totally independent central bank,” he averred. The Fed was an errant oddball institution, obsessed with fighting inflation instead of promoting growth, the Reaganauts charged. Ergo, Volcker (originally an appointee of President Jimmy Carter) was a loose cannon on the deck of macroeconomic policy making.
Some Reagan hagiographers have tried to pooh-pooh Regan’s commentary as not truly part of the Reagan heritage, and cite Reagan’s gentlemanly public statements about Volcker as proof of the pudding. Indeed, “Reagan, The Inflation Fighter” is a subspecies of GOP monographs, written even by people who know better, such as GOP solon and Stanford University academic John Taylor. But the Reaganauts are engaging in Soviet-style revisionism.
Speaking before the National Association of Realtors in December 1984, President Reagan echoed the Regan assault on the Fed. “Let me assure you we are not pleased with the recent increases in interest rates,” said President Reagan. “And frankly there is no satisfactory reason for them.”
And, in an early version of the GOP talking-point coordinated attacks, other prominent establishment pundits simultaneously bared fangs at the Fed, including the Wall Street Journal, which also opined that Fed was being too severe.
By all accounts, Volcker was an outsider in the Regan White House (he was independent after all) and Regan was an insider.
Later, Volcker would recall that the Reagan White House actually did not have a coherent monetary policy in mind—even as they wanted to seize control of the nation’s money supply—and so he was able to sandbag their assault on the Fed.
“I saw him (Reagan) from time to time, but I was not a close intimate of President Reagan’s. His entourage in the White House, or certainly in the Treasury, were very critical at times. They were… kind of a funny mixture. They had monetarist doctrine, supply-side doctrine, libertarian doctrine all mixed together, so some of it wasn’t terribly coherent, which helped me a bit,” Volcker told PBS in 2000.
Flash forward to 2012. Today inflation is one-half that of 1984, the level the Reaganauts and the WSJ thought was well under control. And the economy is in a much deeper mire perhaps12 percent below trend or potential. Unemployment is persistently high, and about 5 percent of the population has dropped out of the work force. That is, one of 20 people in this country, who were gainfully employed in 2008, may never work again, given the ongoing doldrums. Real estate is underwater coast-to-coast, loans made in nominal dollars.
One might expect the President of the United States to breathe fire under such circumstance—a modern-day Don Regan would lay relentless siege on the Fed.
Not so. There is no reflection in the not-so-distant mirror.
Instead, there is a mysterious silence, indeed a vacuum, from the Obama White House on Fed policy. Tim Geithner is the current Treasury Secretary, almost certainly headed to a career on Wall Street soon. A Google search on Obama and monetary policy turns up almost nothing—Fed policy (our most important macroeconomic policy-making agency) is terra incognito for Obama. With search, one can find the Brazilian president discussing the U.S. Fed policy, but not Obama.
Has Team Obama drifted dangerously? One can only conclude so. Unlike the Reaganauts, they did not bring the fight to the Fed, and instead allowed the gold-nuts and Governor Rick Perry to own the issue. Bernanke, who does not inspire awe the way the strong-minded Volcker did, has had to contend to rabid currency worshippers and a rising punditry of inflation-fixated fanatics, such as Dallas Fed President Richard Fisher, without moral support from the White House. Obama’s supine lack of interest in Fed appointments (properly raising the ire of such astute observers as Scott Sumner) nearly constitutes malfeasance in office.
And just how koo-koo are today’s self-appointed anti-inflationistas?
In 2009, Richard Fisher traveled to Japan, a nation that has endured 15 percent deflation in the last 20 years of checkered recessions—and then lectured them on the evils of inflation, which he equated to “rot” in the economy. Lecturing anorexics on the dangers of fatty foods may come to mind, but the serious point is that Bernanke is moored in a dangerous, even perverted milieu, and badly needs help to make the pro-growth decisions that have to be made.
Let us hope that Team Obama wakes up—though it may not matter soon.
If GOP contender Mitt Romney wins the White House, most likely the pressure on the Fed will dissipate—indeed, one can anticipate John Taylor as Fed chief, devising a version of the Taylor Rule that calls for steady QE (as he advocated for Japan). “Deficits don’t matter”—a Bush era mantra—may be heard again. Seems likely, no?
Like I said, history and news always trumps fiction. You couldn’t make this stuff up.