Mitt Romney is an Inflation Dove

During the campaign, Mitt Romney was about the only GOP candidate who refused to criticize Ben Bernanke. Romney kept emphasizing that the number one problem is jobs.  Then Fed-bashing Rick Perry entered the race, threatening Romney’s path to the nomination.  Now Romney was forced to switch to an anti-Fed position, to prevent all the Tea Party-types from shifting to Perry.

Here’s Bruce Bartlett in the FT:

Whoever Mr Romney names as Fed chairman, it is almost certain that he or she will take a more hawkish line on monetary policy. There are already a number of inflation hawks on the 12-member policy making Federal Open Market Committee, which includes, in addition to the seven members of the Federal Reserve Board, five of the 12 regional Federal Reserve presidents. (These presidents are named by local boards for each bank and are neither appointed by the president nor confirmed by the Senate.)

At a minimum, it is doubtful that the Fed will continue to maintain its present policy of being highly accommodative.

I am skeptical of this argument.  Suppose Romney’s elected and his Treasury Secretary Glenn Hubbard presents him with these two options:

1.  Appoint John Taylor, who is a highly respected but controversial economist.  Taylor will tighten monetary policy, and perhaps lead us into a repeat of 1937.  The slowdown will make it impossible to meet your campaign promises for jobs, deficit reduction, or almost anything else.

2.  Appoint Greg Mankiw, a highly respected Republican economist, who would breeze through the Senate almost unanimously.  He would continue the Bernanke policies, but he doesn’t have much of a paper trail, so there’s nothing for his critics to latch onto.  He would allow you to hit your policy targets.

These assumptions are not just pulled out of thin air.  Later in his FT piece Bartlett says the following:

By all accounts, Mr Taylor was disappointed not to have been named chairman of the Fed when Mr Bernanke was named instead. Taylor’s very vocal support for Mr Romney’s election would appear to put him in a good position to achieve his goal should Romney win.

Possibly standing in the way of Mr Taylor’s ambition is the economist Glenn Hubbard of Columbia University, who is Mr Romney’s principal economic adviser. He also previously served as chairman of the Council of Economic Advisors under G W Bush. (Mr Taylor was also a member of the council in the administration of Bush senior.)

It is thought that Mr Hubbard is the one who thwarted Mr Taylor’s ambition to become Fed chairman previously by having Bernanke returned to the Federal Reserve Board in 2006, even though Mr Bernanke had only completed a three-year term on the Board the previous year.

This could be important because Mr Hubbard is thought to have ambitions to be either Treasury secretary or Fed chairman. (In the interest of disclosure Mr Hubbard and I worked together at Treasury during the elder Bush’s administration.) If named Treasury secretary, Mr Hubbard would have a great deal to say about who the president names to the Fed.

I can almost guarantee that some of my commenters are so morally depraved that they will insist I am “defending Romney,” even though this entire post is devoted to calling Romney a liar.  But that’s the world we live in.

About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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