John Taylor, writing at the Wall Street Journal, has come out in support of an idea that has been floated by many conservative economic thinkers (and here on this website), that the Federal Reserve ought not to be focused on multiple monetary policy goals, and instead ought to be directing its efforts solely to maintaining the stability of the value of the dollar. He also calls for stronger measures of Federal Reserve accountability, referring especially to a rule that was dropped in 2000 that forced the Fed to report its monetary strategy to Congress. A renewal of that regulation would put the Fed back on par with its 1990s standing, and no one was complaining about congressional interference in Fed affairs then. In fact they were lauding the independence of the Alan Greenspan led Fed.
Taylor’s thoughtful analysis is on the money, top to bottom. He also calls for a budget plan out of congress that will cap debt-to-GDP numbers at 40%. This would go a long way toward strengthening the dollar, and force government to cut back its spending. Taylor makes the case that increased government spending reduces private investment. That’s known as drowning out, and it has been happening for some time now.
Every dollar the federal, state and local governments commandeer to spend on a project, stimulus, war, or bailout is a dollar that is removed from consumption, or private investment. Rather than develop a plan for leading the country out of this debt morass during his state of the union speech, the president simply knocked the puck to the GOP’s end of the ice. It’s essentially their problem now, the president is going to focus on getting reelected in 2012, and let congressional Republicans try to break his veto wall before the country blows up with debt. It was a politically gutless tactic from a president who has zero intention of making the hard and proper choices for America.
You can’t seem to talk to a liberal who isn’t utterly enamored with the surpluses of the late Clinton years, but ask them if Obama should balance the budget today and you will get a strong negative response. Paul Krugman, the left’s chief economic mouthpiece, wants ever more spending from the government. One wonders what would be enough for Mr. Krugman. Just how many of your dollars is Mr. Krugman willing to take and give to public sector unions in an effort to jumpstart the economy?
After the state of the union speech, it is clear that the president plans to act as though he is moving to the center, while completely ignoring the new mandate sent to him in November. Now more than ever Americans should push for a balanced budget amendment to the constitution. In the meantime changing the Fed’s mandate to force it to focus on protecting the value of the dollar (while it still has any value left) would be a great start for Congress.