Republicans have an economic strategy from the ’90s–the 1890s
It used to be that whenever unemployment was high, Congress would push the Federal Reserve to do more.
But that, Binyamin Appelbaum points out, isn't the world we live in anymore. Instead, for the last seven years, the Congressional GOP has tried to stop the Fed from keeping interest rates low or buying bonds with newly-printed money. It's a strange role reversal. The whole idea behind central bank independence, after all, is that politicians can't be trusted to manage the money supply, since they'd always try to goose the economy in the short-term—when they face re-election—without paying any attention to the inflationary consequences in the longer-term. What we have now, though, is a political party that says it's the central bank that can't be trusted, since it isn't worried about theoretical inflation like they are. What's going on?
It's worth stepping back and reminding ourselves how unusual this is. Until now, it's always been Congress that's said the Fed should do more to fight recessions, not the other way around. Sometimes the politicians have been right; most of the time they haven't. The one time they were, though, was in 1932, when the House of Representatives debated the Goldsborough Bill that would have required the Fed to buy bonds until prices were back up to where they'd been in 1926. The idea, which Congress somehow understood better than the Fed, was that falling prices had made the Great Depression worse, so rising prices would make it better. So to head this off, the Fed started buying bonds on its own—what we'd call quantitative easing today—but then stopped, even though it was working a little, once Congress was out of session. It was the same story 50 years later when Congress once again tried to browbeat the Fed into easing policy. Well, except for the fact that this time the Fed was right to resist. Fed Chair Paul Volcker had engineered the deepest recession since the 1930s in a bid to finally whip inflation, and Congress thought he'd gone too far—enough that they called on him to resign. He didn't, the slump went on, and inflation came down.
All of that's backwards now. It's the Fed that thinks it can and should do more to bring down unemployment, and the Republican Congress that says it shouldn't. In fact, back in 2011, the Republicans took the unprecedented step of sending the Fed a letter warning it off against further stimulus. They've also tried to make the Fed set policy according to a much more restrictive mathematical rule. Or have the Government Accountability Office "audit"—really, second guess—its decisions to try to intimidate it into doing less. And at a time of high unemployment, Republicans have even tried to force the Fed to ignore it and focus only on inflation.
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http://www.washingtonpost.com/blogs/wonkblog/wp/2015/04/09/republicans-have-an-economic-strategy-from-the-90s-the-1890s/
