Texas governor and presidential candidate Rick Perry’s comments about Ben Bernanke and monetary policy have set off a firestorm. He is being criticized by both the left and the right.
But all he really did was offend modern-day sensibilities while raising one of the most important economic issues of our day. Those he offended need to study history. His passion and fiery speech are little different from the words spoken by William Jennings Bryan at the turn of the century.
At a cocktail party fundraiser Perry said:
“If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treasonous in my opinion….We’ve already tried this. All it’s going to be doing is 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.”
But one hundred and fifteen years ago, on July 9, 1896, at the Chicago Democratic Convention, William Jennings Bryan said:
“If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world….we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.”
In essence, Perry and Bryan raise a centuries-old argument. Governments have always been tempted to manipulate the value of money. Most have done so, sometimes for purposes of greed or power; other times because of misguided policy reasons. Bryan wanted inflation for farmers. Rising productivity was pushing prices down and those farmers who were not increasing production were hurt financially. They wrongly blamed the gold standard, or “hard money,” for their problems. And even though it took another 17 years, his arguments ushered in the era of the Federal Reserve.
Since 1913, when the Federal Reserve was created, the rate of inflation in the U.S. has been consistently higher than it was prior to 1913. The Fed has made many mistakes. Milton Friedman said the Fed caused the Great Depression by allowing the money supply to collapse. In the 1970s, the Fed created double-digit inflation. Alan Greenspan’s low rates between 2003 and 2005 helped create the housing bubble. Lately, with the dollar falling and inflation rising, many can credibly point their fingers at the Fed as it holds interest rates near zero and finds new ways of interfering with financial markets and growing its balance sheet. It does all this with little interference from politicians.
Rick Perry is questioning this error-riddled history and the current policy stance. He is right that all this money-printing is a negative for the economy. It erodes the value of the dollar and undermines living standards by de-valuing the hard work and investments of millions of people. Bernanke and his supporters say he made “courageous” policy moves to save the economy, but this is highly debatable.
The “panic” of 2008 is long gone, inflation is rising, commodity prices have soared, interest rates are at insanely low levels and the Fed keeps finding new reasons to remain accommodating. Perry is right: This is a mistake. It is not the Fed’s job to offset damage done by government spending and regulation. The more the government spends and the heavier the regulation, the higher unemployment is and the slower the economy grows. This is not the Fed’s problem, but the Fed, unlike the European Central Bank, has a dual mandate that forces it to make these mistakes.
Even though the Fed has brought some of this on itself by creating a cult of personality around its chairman, accusing Ben Bernanke of “treason” is over-heated rhetoric. This is about policy, not personality. Ben Bernanke is just the latest steward of a system that was put in place almost 100 years ago. The system is flawed, not the people who run it. Perry’s real fight should be with the role of monetary policy and the many mistakes that can be, and have been, made with a very powerful tool.
The U.S. deserves a transparent debate about monetary policy, a stable dollar, the dual mandate, the gold standard, a price rule for money and the Humphrey-Hawkins Act. As William Jennings Bryan knew, sometimes the only way to get people to focus on an issue is to wrap it up in some fiery and passionate language. For that, Rick Perry should be congratulated, not castigated.
Brian S. Wesbury is the chief economist at First Trust Advisors, LP.