Texas Governor Rick Perry introduced himself to the U.S. electorate Monday night by offering the country a little monetary advice.
Asked about the Federal Reserve at a campaign event in Cedar Rapids, Iowa, Perry said of Fed Chairman Ben S. Bernanke: “If this guy prints more money between now and the election, I don’t know what you all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”
And what would move amiable Texans to such ugliness? “Printing more money to play politics at this particular time in American history is almost treacherous -- or treasonous -- in my opinion.”
Let’s give him the benefit of the doubt, and ascribe the violent rhetoric to the passions of a new campaign. Does the underlying sentiment reveal anything important about the governor’s grasp of monetary policy? Or his political strategy? Unfortunately, yes -- and the two are related.
If Perry intended to say that a third round of quantitative easing -- the Fed’s program for purchasing Treasury bonds to encourage lending -- was unwise, he may have had an argument.
But he didn’t. He said “printing more money” is close to treason. If he believes this, he either doesn’t understand the Fed’s function, or is a peculiar kind of monetary extremist. As economies grow -- and jobs are created, and demand for goods and services increases, and people have children -- the demand for dollars also grows. To meet this demand, the Fed prints money electronically in good times and bad, under Democratic and Republican presidents. In times of stress, like the last few years, it can add significantly more money to the economy through quantitative easing and other methods.
If the Fed didn’t print any more money at all, we’d soon be relying on a cumbersome and rather inexact form of exchange known as the barter system. Perry surely understands all this.
He also said that printing more money would be “devaluing the dollar in your pocket, and we cannot afford that. We have to learn the lessons of the past three years, that they’ve been devastating.” This would be a more compelling argument if inflation weren’t low by historical standards and unemployment above 9 percent. The Fed’s response to the recession has certainly been aggressive, and not always adequately transparent. But blaming the Fed’s monetary policy for the “devastating” effects of the financial crisis is like blaming the doctor for aggressively treating a smoker’s lung cancer.
So what exactly was Perry trying to express? Most telling was his conflation of Bernanke -- who acts independently of the White House and was first appointed by President George W. Bush -- with President Barack Obama’s political operation. If Perry thinks printing more money would be truly deleterious, how on earth would doing so redound to Obama’s benefit? And if he thinks that printing more money would instead help Obama by improving the economy, is he really prepared to argue that Bernanke shouldn’t do it? Or does he think the Fed is sufficiently nimble to ensure the economy booms just through November 2012, before allowing it to fall prey to inflation once Obama is safely back in office?
It’s clear that Perry has learned that Fed-bashing, however illogical, never fails to draw populist cheers.
We can and should argue about how much the central bank should tinker with the money supply, and whether another round of quantitative easing passes the cost-benefit test, remembering that the Fed’s mission is both to encourage growth and to stabilize prices. But calling such an effort treasonous, or politically motivated, shows either a puzzling lack of judgment or -- more likely, we fear -- a deep and worrisome cynicism.
To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at email@example.com.