flickr / DonkeyHoteyTwo weeks ago, Jonathan Chait profiled me in the Atlantic as “the loneliest Republican.” His piece ran with a caricature of me atop a palm tree, throwing coconuts at my antagonists: not just mainstream Republicans, but also my fellow reformists, who don’t seem nearly angry enough that the Republican party is ignoring them.
The primary liberal reaction to the profile has been self-congratulation: Mike Konczal and Paul Krugman and Michael Tomasky all took the profile as a launching pad to dispute the notion that there is such a thing as a reformist conservative movement. They all called me out as an exception (thanks, guys!) but they’re selling my colleagues short.
As Chait suggests, I am frustrated, but his profile actually overstates my level of disagreement with my fellow reformists. In some areas (particularly health care) the “reformist” agenda has been very heavy on concern trolling. But on fiscal policy, reformists are making serious contributions, and they have a big victory under their belt on monetary policy.
First let’s look at fiscal policy. Mike Konczal says reformists can’t seriously address the federal budget because of their consensus that “the tax code is too progressive” and “taxes in general should be lower.” That’s not the view of the reformists I talk to.
James Pethokoukis wrote for National Review last week that conservatives should abandon the goal of a flat tax and support a tax system that can support federal spending of at least 23 per cent of GDP. Ramesh Ponnuru, Michael Gerson and Peter Wehner have all called for “family-friendly” tax reforms that would give bigger tax credits to poor and middle-income people with children, making the tax code more progressive.
The main place the reformers have failed on fiscal policy is that they haven’t said what their statements imply: if we’re not going to have drastic reductions in federal spending and we’re going to give tax relief to families in the middle of the income distribution and below, tax rates can’t go down at the top. I’ve pressed the reformers to be clearer on this point, and they are getting somewhat clearer. For example, Reihan Salam said in March that “the top rate sholudn’t be our top tax priority” and endorsed a legislative strategy that would leave the top income tax rate at 39.6 per cent.
But the topic about which conservative reformists really should be bragging is monetary policy. The most significant reformist conservative idea on the economy is that central banks ought to aggressively boost weak economies with loose monetary policy, and that appropriately loose money can be a substitute for loose fiscal policy. In general, the approach the reformists (including me) endorse is a nominal GDP target, which would have the central bank target a higher inflation rate when growth is lower and vice-versa.
Since last fall, we’ve been experimenting with something that resembles the reformists’ proposal: Congress has been tightening the budget while the Federal Reserve has been loosening the money supply. When the Fed announced its new, looser policy in September and the stock market soared, Matt Yglesias declared “the Scott Sumner rally” in honour of the top advocate of NGDP targeting. (The Fed isn’t actually targeting GDP but it did announce an unemployment-based trigger for easing, which is similar in effect.)
And while the Fed has sprung into action, we’ve had a fair bit of fiscal austerity: between the end of the payroll tax holiday, the expiration of the upper-income Bush tax cuts and the sequester, we’ve had policy changes in the last six months that reduce the budget deficit by about 1.7 per cent of GDP.
In Europe, governments are implementing austerity and watching their economies slip back into recession, but here, the results have been… not horrible. Economic growth and job growth are still too slow, but they’re not any slower this year than last year. Monetary policy has made all the difference.
So it makes perfect sense that Scott Sumner responded to the round of liberal self-back-patting with a list of recent problems for the liberal perspective on economic policy, particularly this: “The left predicts fiscal austerity will slow the recovery, and yet both GDP and jobs are actually a bit ahead of the 2012 pace so far this year.” In other words, it’s looking more and more like Sumner and other market monetarists are right, and loose monetary policy is a viable substitute for loose fiscal policy.
Liberals don’t like this observation. They want to keep the business cycle discussion focused on the terribleness of fiscal austerity because they oppose austerity for reasons unrelated to the business cycle — they see it as threatening progressive programs they favour and preventing the creation of new ones. Relatedly, liberals don’t actually oppose all fiscal austerity. They cheered for the expiration of the Bush tax cuts on the wealthy and mostly shrugged at the end of the payroll tax holiday. It’s only domestic spending cuts that are really getting the left riled, because they don’t want to cut spending.
All this is not to say that sequestration is a good idea or that fiscal stimulus is useless. Both the fiscal and the monetary channels work to stimulate the economy, and because they are both subject to practical and political limits, we shouldn’t close either one off. I also recognise that there are excellent arguments for not cutting food stamps that don’t relate to the business cycle. My point is simply that liberals, like conservatives, want to push their long-term policy agenda under the guise of addressing short-term economic problems — and the reformist conservatives, by being right about monetary policy, have interfered with their ability to do so.
But while market monetarism is the shining success of the conservative reform movement, it also points to trouble for the reformists. We have had zero success in convincing Republican elected officials that easy money is ever a good idea. The Republican party has gotten, if anything, more rabidly afraid of inflation and more flirtatious with the idea of returning to a gold standard. The 2012 Republican National Convention adopted a platform calling for a “commission to investigate possible ways to set a fixed value for the dollar.
In this specific case, the reformists were able to get a hearing from the Republicans who count: the ones at the Fed, including Ben Bernanke. But in almost any other area, changing the conservative policy agenda will require getting Republican politicians to listen to you. And on that subject, Pethokoukis ran a disheartening quote from an anonymous GOP Senate staffer: “It’s not that we don’t know about your ideas or understand them. We just don’t think they’re any good.”
This is the key problem for reformists — actual Republican elected officials aren’t interested in what we have to say unless it can be used to craft anti-Obama talking points. That has me pessimistic about changes in areas beyond monetary policy, and it makes me angry. And I suspect, in time, it will make my fellow reformists angry, too.
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