(Invictus here, kids. Don’t go bashing BR.)
I learned two interesting things last week:
Erick Erickson told me the following (bold font is mine, bold claim is Erickson’s):
Likewise, after the 2003 tax cuts, the unemployment rate fell to the lowest level since World War II. Let me repeat that: the Bush economic program created the lowest unemployment level ever. In fact, economists liken it to full employment given the demographic composition of those who were left on the unemployment line.
This lie was so important a lie that Mr. Erickson had to repeat it to his readership. Either Mr. Erickson can’t remember back to just the late 1990s, or someone at the Bureau of Labor Statistics should lose their job. (As an aside, I’m not sure what to make of Mr. Erickson’s claim that “ever” and “since World War II” are apparently interchangeable. But I digress.)
Then I learned from Ezra Klein’s interview of Representative Paul Ryan what he would do to get the economy moving again: Raise interest rates!
I think literally that if we raised the federal funds rate by a point, it would help push money into the economy, as right now, the safest play is to stay with the federal money and federal paper.
It’s unsurprising that Paul Krugman was having none of it:
I don’t even know where to start with this. What does Ryan think the fed funds rate is? (It’s the rate at which banks lend each other money overnight, usually to help meet reserve requirements.) He obviously doesn’t know the the Fed funds rate basically equals the return on federal paper, so that raising that rate would make banks more, not less, likely to stay with that federal paper. I’m sure someone will try to come up with a reason why Ryan is being smart here, but the truth is that he’s stone-cold ignorant.
Many people — myself among them — apparently emailed Klein about Ryan’s remark. To me, there was only one possible explanation: He misspoke. Nothing else would make any sense. So Klein went back to Ryan for clarification and, lo and behold, he did not misspeak. Higher rates are his story and he’s sticking to it. I’m somewhat unfamiliar with the economic principles that call for raising rates to stimulate economic activity; I’d learned it the other way around — lower rates to stimulate, raise rates to decelerate. But I’m nothing if not open-minded. Klein then appended his interview with Ryan’s clarification.
In defense of his position, Ryan offered the following:
Of course I do not think increasing the federal funds rate is what one does to spur immediate economic growth.
Although that’s essentially what he said.
But I do think we need to understand that the extremely accommodative monetary policy we have had for the past two years is not risk free.
No monetary policy — accommodative, restrictive, or somewhere in between — is ever risk free. This is gibberish.
Observers like Kansas City Fed President Tom Hoening have made the case for a modest increase in the federal funds rate to send signals of monetary credibility, get back to normalcy and ward off speculative behavior.
Really, Mr. Ryan? Really? You’re going to go with Tom Hoenig? Tom Hoenig, who has been dissenting on FOMC decisions since January (when he became a voter) because he believed that “economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted.” Tom Hoenig, who only recently took his 2010 GDP forecast down to a still-absurd 3% (a level for 2010 that I assign about a zero percent probability of achieving). And by the way, Mr. Ryan, you’d have a tad more credibility with me if you spelled Mr. Hoenig’s name correctly instead of referring to him as “Hoening” not once, but twice. (Apologies to Mr. Ryan in the event that was Mr. Klein’s error, but I suspect the exchange took place by email.)
As Krugman appended his piece after Klein appended his:
And sure enough, Ryan tries to cover himself; see the addendum at the end of Ezra’s interview. But he’s faking it: there’s no way to go from what he now claims he was saying to the words he actually said. So he’s both ignorant and dishonest, which we already knew from the way he tried to deny that privatizing Social Security was actually, um, privatizing Social Security.
And here’s the scary part (as if what’s above isn’t scary enough): Klein describes Ryan as “…one of the party’s most influential voices on the economy. … soon to be one of the nation’s most influential voices on economic policy.”
Be afraid. Be very afraid.
Adding: Mr. Klein verified that Mr. Ryan’s clarification (such as it was) came via email, thereby confirming it was Mr. Ryan, not Mr. Klein, who was ignorant of how to spell Mr. Hoenig’s name.