I have a confession to make. I knew what I was going to write about Ben Bernanke’s congressional testimony before he opened his mouth. I knew I’d say that Bernanke’s latest round of monetary policy hearings on Capitol Hill was an excellent time to reflect on the Democratic Party’s profound failure to oversee any constructive influence on monetary policy. I’d watched these hearings before, and Democrats so uniformly failed to bring any progressive pressure that it was obvious they wouldn’t change their tune this time around.
Except that a funny thing happened Thursday morning and they surprised me. Years late (but better late than never), Democrats seem to have found their monetary mojo. It’s giving me some hope that the Bernanke succession will lead to better days to come.
To be sure, things got off to a friendlier start for my original, pessimistic thesis on Wednesday, when Bernanke sat before the House Financial Services Committee. There we got the dialogue I was expecting, with members of both parties overwhelmingly ignoring the ostensible subject of the hearings in order to grind other axes.
For Republicans, the ax of choice was Fannie Mae and Freddie Mac. For Democrats, as usual, the ax was fiscal policy. Republicans asked Bernanke leading questions about whether Fannie and Freddie shouldn’t be privatized. (Bernanke thinks a reduced government role is desirable but declined to endorse a specific approach). Democrats asked leading questions about whether sequestration was hurting the economy. (Bernanke thinks it is, and should be replaced with a long-term deficit stabilization deal). But while both sides mostly stuck to their pet issues, the GOP did take the time to do a little hard-money advocacy. Rep. Jeb Hensarling R-Texas, for example, opined that the stock market is “hooked on the drug of easy money.”
That’s how things have played out throughout the Obama years. Both parties have largely neglected monetary policy, but Republicans have consistently made it clear that they would favor tighter money. Despite mass unemployment and low inflation, they think the Fed has been insufficiently vigilant against inflation and should show more indifference to the unemployed. For an opposition party, it’s a convenient stance—the view is that Obama should take the blame for labor market problems, and the Fed should simply stand pat.
Democrats, meanwhile, have failed to provide any counterbalance. Many writers have castigated the Fed for providing years of above-target unemployment and below-target inflation, but no politicians have given voice to the dove case. And even though the Fed is nominally independent of politics, this kind of unbalanced pressure must make a difference. At the margin, money has consistently been tighter—and growth slower, and unemployment higher—than it probably would have been had Democrats been out there beating the drums for monetary stimulus.
But on Thursday morning, when the action shifted to the Senate, a new day had dawned. Banking Committee Chairman Tim Johnson, D-S.D., got the ball rolling with a leading question: Would unwinding federal reserve bond purchases too early “threaten the economy and the financial system”?
Bob Corker, R-Tenn., got in one for tight money, characterizing the Fed as “almost acting as an enabler for Congress,” which has been “relying on the Fed for amphetamines.” Tom Coburn, R-Okla., used made-up stats to argue that inflation is out of control. But Bob Menendez, D-N.J., had his own line of questioning about whether certain members of the Fed’s governing board hadn’t been overstating the possible downsides of easier money. And Chuck Schumer, D-N.Y., pressed on the subject of why recent bad growth news wasn’t pushing the Fed for greater easing. The two Democrats who avoided monetary issues entirely, Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts, both asked questions that were directly relevant to bank regulatory bills they’re sponsoring—a perfectly respectable reason to go off-topic.
Why did Democrats suddenly get religion? What accounts for this amazing turnaround? I’d like to think it’s because their staff started reading Moneybox.
More plausibly: It’s probably not a coincidence that this revival is happening at Bernanke’s last round of hearings. The end of his term means that soon there will be confirmation hearings for a replacement—most likely Janet Yellen—and with the GOP in a fighting mood, they won’t feature the kind of smooth sailing that we’ve seen from previous nominations to the chairmanship. That means members of the relevant committees and their staffers need to start preparing to talk about the issues at hand. If I’m right and the dovish lines of questioning are about laying the groundwork for some dovish confirmation hearings, then the bad news about my column framing could be good news indeed for the country.