The people who should be most concerned about the hearing are Republican policy elites. Many Republicans on the committee tacitly embraced deflationary, Herbert Hoover-style economics, which many GOP wonks know well would be devastating to the economy.
Because the American economy has been stuck at the zero lower bound (where the Federal Reserve has cut interest rates as far as possible) for five straight years now, and absent reform of the Fed’s structure to give it more tools — to enable giving newly printed money straight to every citizen, for example — it is likely to bounce off that floor again and again in coming decades. At that floor, and with no help from Congress, the Fed’s unconventional stimulus programs are all that is keeping the economy on its feet. And if Republicans take power at or near that floor, and proceed to appoint a Fed governor that will enact harsh Hoover-style monetary policy, they will incite a rapid recession.
Earlier this year I wrote a piece looking at a set of conservative “reformists,” who have made some limited success in trying to nudge the policy conversations in some Republicans circles. Their biggest success (inspired by the economist Scott Sumner, and the ideas of Milton Friedman) has been coalescing around a pro-monetary stimulus agenda (in contexts which merit it, like now). This is an admirable intellectual development, given the party’s traditional fixation on inflation.
But little of this has percolated through the broader party. During the hearing Senator Shelby (who, it was clear, had no idea what he was talking about) halfheartedly tried to tie the Fed’s monetary stimulus program to Keynes. Senator Heller asked what drives gold prices. Senator Corker said that “easy money is an elitist policy.” Senator Toomey said “the adverse consequences of [stimulus] are punishing savers,” implying that the Fed should raise interest rates. On balance, the committee’s Republicans clearly favored tighter money, which has to have Milton Friedman spinning in his grave.
But in any case, these are dangerous ideas, both for Republicans and the country. Some might argue that this is all to the good, that the GOP needs to be broken of its nutty economic beliefs by a dozen or so consecutive shellackings at the ballot box. But what preceded FDR was almost a whole presidential term of ~20% unemployment. It would be best for everyone if Republicans could lead themselves back to Milton Friedman’s wisdom without massive collateral misery.