The Magazine

Republicans Learn Moneyball

Why the GOP candidates need to talk about the Fed.

Oct 24, 2011, Vol. 17, No. 06 • By JEFFREY BELL
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

Three Republican presidential candidates​—​Herman Cain, Ron Paul, and Newt Gingrich​—​have at least hinted about the desirability of a return to the gold standard. The four top Republican congressional leaders recently called on the Federal Reserve to curb its interventions in the U.S. economy. In early October the Heritage Foundation held a two-day sound money conference in which both keynote speakers​—​New York investment banker Lewis Lehrman and former presidential candidate Steve Forbes​—​called for adoption of a gold-backed dollar. Advocating the replacement of Fed chairman Ben Bernanke has become a staple of virtually all the presidential candidates. (Even establishmentarian Mitt Romney has joined in, apparently rendering inoperative his April defense of Bernanke.)

Photo of the Federal Bank building

So Republican elites are rapidly climbing the learning curve on monetary policy, certainly in comparison to the days when presidential candidate John McCain joked that if anything happened to then-Fed chairman Alan Greenspan, his corpse should be propped up and nominated to a new term. But to understand fully the unspoken alliance between President Obama and Chairman Bernanke, and the threat it poses to Republican hopes in the 2012 election, the GOP still has some distance to go.

There is, of course, nothing new about political symbiosis between presidents and Fed chairmen​—​most definitely including Fed chairmen originally appointed by a president of the other party. Conservatives of a certain age have not forgotten the 1993 sight of Reagan appointee Greenspan sitting in the gallery next to Hillary Clinton at a joint session of Congress, tacitly blessing Bill Clinton’s stiff tax rate increases.

But Bernanke’s replication of the Obama reelection campaign’s talking points is setting new standards of subservience. In the question-and-answer period after a recent speech in Cleveland, for example, Bernanke described long-term unemployment as a “national crisis,” noting that 45 percent of the unemployed have been out of work for at least six months.

“This is unheard of,” Bernanke correctly noted. “This has never happened in the postwar period in the United States. They are losing the skills they had, they are losing their connections, their attachment to the labor force.” According to the Associated Press, Bernanke “suggested that Congress should take further action to combat it.”

Congress? The stubborn duration of high unemployment is exactly matched by the uniqueness and duration of Bernanke’s zero-interest-rate policy that is its single biggest cause. Zero interest rates, accompanied by lavish Fed printing of new dollars, pump up the U.S. bond and stock markets, providing plentiful financing for big banks and big business, but offer little or no incentive for medium and small banks to make available the lines of credit that are the bread and butter of thriving small businesses.

Stanford economist Ronald McKin-non estimates that lines of credit to small businesses have declined by two-thirds in the nearly three years the Fed’s zero-interest-rate policy has been in place. And small businesses account for the bulk of net job creation. Continued zero interest rates mean continued high unemployment. And in August, Bernanke’s federal open market committee voted 7-3 to keep zero interest rates in place until at least mid-2013. (The policy began in December 2008.)

In the wake of that extraordinary announcement, Camden R. Fine, president of the Independent Community Bankers of America, could not contain himself. In an op-ed in the Washington Post, he wrote: “I kept staring at that number, 2013, assuming that it was a mistake. .  .  . 

One would think that the Fed would have considered the unintended consequences of such a unilateral move. In short, the Fed has taken away community bankers’ ability to compete in the free market. In the midst of a depressed economy with low loan demand, the central bank is exacerbating the financial crisis. Why? In my view, the Fed’s policy is nothing more than a backdoor bailout for the Wall Street mega-banks and investment houses; it amounts to the back of the hand for the community banks of this country .  .  . turning its guns on the very players in our economy that create jobs and support small business. Once again, Wall Street gets a bailout​—​on the backs of Main Street’s banks, small businesses, and hardworking Americans.

Recent Blog Posts

The Weekly Standard Archives

Browse 19 Years of the Weekly Standard

Old covers