Friday, May 13, 2011

The Economist trashes Republican Economic Policies

Everyone's favorite Liberal (as in economic liberal, not social liberal) economic newspaper The Economist takes GOP economic policies to the woodshed.
Views on the efficacy of countercyclical fiscal policy obviously differ, though prior to the election of Barack Obama Republican legislators had no compunction about voting for stimulus packages (though tax cuts were favoured). The turn against monetary policy is a disturbing and potentially quite dangerous development. Once upon a time, Milton Friedman—a man who basically blamed the Depression on tight money—was the leading economic intellectual of the conservative movement. Now top GOP members can't stop talking about the importance of "hard money" for recovery. Everyone from Rand Paul to Tim Pawlenty to Paul Ryan is on the bandwagon.

This is quackery.
Hard money policies are those policies so beloved of Ron Paul and the other "gold is magic" idiots.  Specie currencies, currencies backed by gold or sliver, for instance, are believed to be more "real" than fiat currency, currency backed by law and regulation.  Fiat money has been used by nations for thousands of years, it is not a new concept.  Reliance on specie currencies limits the growth potential of an economy.  And I have yet to have someone explain to me why the element with 79 protons is economically magical.
The hard money approach is atrocious economics. I don't think it's outlandish (or even particularly controversial) to say that the biggest difference in the outcome of the Great Recession and the Great Depression was the change in central bank approach to policy. An economic catastrophe was averted. What's more, hard money is a great force for illiberalism.

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