It turns out that young adult novels about how everyone will be sad when you're gone aren't the best guide to monetary policy.
It's a lesson everybody learns. Well, at least everybody other than Paul Ryan, who, back in 2005, said that "I always go back to, you know, Francisco d'Anconia's speech, at Bill Taggart's wedding, on money," from Ayn Rand's Atlas Shrugged, "when I think about monetary policy." And that doesn't seem to have changed, based on everything he's said about the Federal Reserve, in the intervening decade. Which is why Ryan has been so spectacularly wrong about inflation, the dollar, and, well, the whole economy the past few years.
Ryan, you see, isn't worried we'll turn into 1970s America with its double-digit inflation every year. He's worried we'll turn into 1920s Germany with its double-digit inflation every day. (At that rate, prices doubled every four days). "Pressed for cash, the government will take the easy way out," Ryan mused in 2013, and "crank up the printing presses." The result wouldn't be any run-of-the-mill inflation, but rather "the debasement of our currency." And in case you have any doubt how bad that would be, well, Lenin supposedly said that's the best way to destroy the capitalist system. So pretty bad.
Ryan, though, didn't think this was a scare story. He thought it was our story. In 2009, he philosophized that "a lot of people would observe that we are right now living in an Ayn Rand novel." A year later, he all but accused the Fed of using the printing press to pay our bills when he said its bond-buying "looks an awful lot like an attempt to bail out fiscal policy." And in 2011, he somberly warned then-Fed Chair Ben Bernanke that "there is nothing more insidious that a country can do its citizens than debase its currency."
It was a weird thing to be worrying about. Inflation was just 1.7 percent when Ryan brought up dollar debasement. It's 1.2 percent now. And, as you can see below, rather than being debased, debauched or otherwise devalued, the dollar is actually up 13 percent against a broad index of currencies over this time. Even if you judge the dollar against a basket of commodities, which you shouldn't, since those prices are set in world markets beyond the Fed's control, there hasn't been anything resembling "debasement": Brent oil has fallen from $100 to $53 and gold from $1,362 to $1,211.
And remember, the dollar is up even though interest rates have been zero the whole time and the Fed has "printed" another $1.6 trillion. Or, rather, make that "because." The Fed's unconventional policies weren't, as they're happy to point out, a panacea, but they did help, and now that the recovery is finally picking up, they're getting ready to raise rates—which makes holding dollars that will pay you interest more attractive than, say, euros that won't. The key, though, is that they wouldn't be talking about raising rates soon-ish—maybe too soon-ish—if they hadn't kept rates low before. If they'd tried to raise rates a few years ago, like Europe did, then they'd probably be lowering them all over again, like Europe also did, to try to bring back the growth that they'd killed.
Why has Paul Ryan been wrong about everything? Well, he missed what a lot of people miss, which is that the rules change when interest rates are zero. The Fed can't boost the economy like it normally does—buying short-term debt with newly-printed money—because short-term debt and money are pretty much the same when interest rates are zero. The Fed has to buy other stuff with newly-printed money instead, but even that won't help a lot unless it also convinces people that inflation will go up in the future. If it doesn't, which the Fed didn't, then lenders won't want to lend, borrowers won't want to borrow, and all the new money the Fed prints will just pile up in the banks. That's what happened in 1930s America when interest rates were zero, it's what happened in 1990s Japan when interest rates were zero, and, yes, it's what's happened in 2010s America too.
You won't learn that from Ayn Rand's books, though. Maybe he should try this one instead.