Paul Krugman takes as granted that Gramm-Taylor in the Wall Street Journal makes no substantive sense at all: Paul Krugman:
Brad DeLong is upset by the illogic of John Taylor and Phil Gramm’s attack on the Fed. Indeed: it boggles the mind that they believe that a downside of expansionary policy now is that it will require contractionary policy once the economy has recovered. Um, isn’t that exactly what you want monetary policy to do — boost the economy when it’s weak, take away the punchbowl when the party gets going?
But what truly freaks him out is the optics:
But what really boggles my mind is the Romney campaign’s evident belief that it gains credibility by rolling out Phil “Mental Recession” Gramm as a spokesman. Gramm is best known these days for dismissing the risks to the economy when a recession was already underway and a catastrophic crisis was just around the corner, meanwhile denouncing us as a “nation of whiners”. And the Romney people think that putting him out in front makes them more persuasive?
It is very surprising.
If Gramm and Taylor are working at the level of the political campaign, bashing Bernanke at this late date makes no sense whatsoever: QE III comes quarters to late to materially affect demand, production, and employment before the election; Romney is not going to lose just because bond prices go up a little more; this critique comes too late to affect Federal Reserve policies--and reminds everybody in and around financial markets that the Republican Party has gone full wingnut and that they should at the very least sit this one out or direct their donations over the next month and a half elsewhere.
Perhaps Gramm and Taylor are not working at the level of the political campaign--are not seeking to improve Ryan-Romney's chances. Perhaps they are working at the level of trying to curry favor with Paul Ryan--if they are seeking high federal office (Gramm is 70, but Bentsen became Secretary of the Treasury at 72), then for Ryan to weigh on saying that Gramm and Taylor are sound while Hubbard and Mankiw are really Keynesians might tip the balance.
But it seems more likely to me that what is going on here is epistemic closure: neither Gramm nor Taylor understand how low Gramm's stock is as a result of his leading the financial deregulation movement of the 1990s, and neither Gramm nor Taylor understand how weak their arguments that "QE III has costs in its unwinding" really are.