and we need to pray to The One Who Is that the next party that picks up its pieces is less dedicated to making America poorer in the hope that it will redound to its partisan advantage.
Greg Ip:
The Republicans’ new voodoo economics: When John McCain was running for the Republican presidential nomination nearly 12 years ago, he declared that Alan Greenspan was so critical to the economy that, if the then-Federal Reserve chairman died, he’d put sunglasses on the body, prop him up and hope no one noticed. It’s safe to say that GOP opinions of the Fed have slipped a bit since. Texas Gov. Rick Perry, a newly declared candidate for president, said it would be “treasonous” for Greenspan’s successor, Ben Bernanke, to “print more money between now and the election” in an effort to boost the economy. Other candidates have been equally damning if slightly less extreme.... If Republicans dislike monetary stimulus, they loathe its fiscal cousin even more, routinely labeling Obama’s stimulus as ineffective, or worse, counterproductive. They want balanced budgets, the sooner the better....
This, too, is at odds with the party’s earlier views. The administration of George W. Bush sold its 2001 and 2003 tax cuts as Keynesian-style economic stimulus. Lawrence Lindsey, a top Bush adviser, even likened opponents of the tax cuts to President Herbert Hoover, whose obsession with balancing the budget in 1932 worsened the Great Depression.
Certainly, some of this rhetoric is just political opportunism. The Fed and the stimulus package are handy proxies for Republicans’ real target, which is Obama....
[S]omething more fundamental is going on: The economic ideology of the Republican Party has changed.... Liberals and conservatives in the United States have long differed on how much the government should meddle in individual markets, whether for energy or health care. But they have largely agreed that the government should have at least some role in smoothing out the ups and downs of the business cycle.... But this is the consensus that many Republicans in effect now reject. In their view, the government has no more role meddling in the business cycle than in any other market: "Many of our problems can be traced to a misguided belief by politicians that the American economy is something that can be controlled or micromanaged or influenced positively by government intervention and borrowing,” House Speaker John Boehner (R-Ohio) said in a speech in May.... This is not to be confused with supply-side economics, the dubious Reagan-era doctrine that tax cuts would generate enough economic growth and revenue to reduce the deficit....
Among Keynes’s leading opponents were economists of the “Austrian school” such as future Nobel laureate Friedrich Hayek and Ludwig von Mises. Austrians considered recessions a natural feature of capitalist economies, and efforts to suppress them via monetary or fiscal policy were apt to distort investment, worsen booms and busts, or lead to inflation.... The Austrian view... is now experiencing a renaissance....
Keynesian policy fell into disrepute in the 1970s, when its advocates tried to drive unemployment ever lower using fiscal and monetary policy. Instead, they brought on ever-rising inflation and a series of deep recessions. This did not, however, invalidate macroeconomic stabilization: The job simply became the preserve of the Fed. It handled it with aplomb, skillfully managing inflation and unemployment so that the 1980s, 1990s and early 2000s were a period of exceptional macroeconomic stability. No wonder McCain advocated the “Weekend at Bernie’s” strategy for keeping Greenspan around.
In retrospect, the stability of that era bred complacency, encouraging households to accumulate too much debt and financiers to take too many risks.... The subsequent crisis and recession were so deep that they exhausted the Fed’s conventional remedy of lowering short-term interest rates. Obama’s 2009 stimulus package and the Fed’s foray into “quantitative easing” — that is, buying government bonds to lower their yields and thus increase spending — were unprecedented but nonetheless orthodox responses to economic weakness when short-term interest rates are zero.
Many Republicans consider the tepid economic recovery an indictment of Keynesianism.... They almost surely have it wrong. Uncertainty about fiscal and monetary policy was also rampant in the early 1980s: Taxes were cut and raised repeatedly and the Fed tried, then abandoned, efforts to target growth in the money supply instead of interest rates. Yet after a sharp recession in 1981-82, the economy took off, primarily because the recession had been induced by high interest rates and, once rates fell, demand sprang back....
What would the Republican Party’s new economic ideology mean if the GOP nominee assumes the presidency in 2013?... If we take their views at face value, we would not expect the new president, even if dealing with a renewed economic slump, to bless more fiscal or monetary stimulus. Indeed, more spending cuts and higher interest rates could be in store.... Of course, it’s one thing for a Republican candidate to inveigh against macroeconomic fine-tuning while stumping for tea party votes during the primaries. Once in office, presidents must think more carefully about the consequences of their decisions, both for the economy and reelection. At present, the public is far more worried about jobs than the deficit...
