The question, then, is how almost every Republican presidential candidate has ended up embracing a view that, as we'll see, is not only at odds with economics, but also experience itself. And the answer, in large part, seems to be bad history. Republicans seem to either think that everything has gone wrong since the 1930s, or that everything is about to go wrong like it did in the 1970s.
Take that first group of Cruz and Paul. They want the dollar to always be worth a certain amount of gold, because that would keep the government from printing money or borrowing too much of it. Getting rid of the gold standard was, conservative thinking goes, the first step that let FDR create the modern welfare state, so bringing it back would reverse that. What they don't realize, though, is that it was also the first step that let FDR put people back to work, and without that, it would have taken a lot longer to do so. That's because the Fed was forced to raise rates in 1931, pulling money out of the economy in the process, to preserve the link between the dollar and gold. That helped turn a bad recession into a Great Depression, and it would have done the same if we'd had the gold standard in 2008.
But even Republicans who don't want to go as far as restoring the gold standard still want to go quite a ways to rein in the Fed. They're worried that all the money it's printed will inevitably turn into inflation, no matter how high unemployment might be. In other words, that we'll get a rerun of that '70s economic show, with runaway inflation despite an economy at a standstill. That's why they want to give the Fed new rules that would prevent it from buying bonds with newly-printed money, aka quantitative easing, like it has the last seven years. That might mean stripping it of its so-called dual mandate targeting low inflation and low unemployment, as new House Speaker Paul Ryan has tried, and giving it just a price stability mandate instead. Or it might mean forcing the Fed to follow a mathematical rule for setting interest rates, and explain itself before Congress like a naughty child if it ever deviates from that. But in any case, the idea is the same: to handcuff the Fed so it can't do as much as it has been.
It's a funny thing to be worrying about right now. Inflation is lower and the dollar is higher than both of them were when the Fed started printing money in 2008. And there's no reason to expect that to change anytime soon. It's harder for an inflationary spiral to take off today than it was in the 1970s, because workers have lost the bargaining power to demand wage increases when prices do. And even if it did, the Fed should see it coming soon enough, since it doesn't just look at what inflation is but rather what markets expect it to be, and the Fed would nip it in the bud by raising rates. The upshot is that, just like textbook economics says, it isn't easy for inflation to increase when unemployment already has. Now, it's true that joblessness has finally come down to more normal levels, but maybe not as much as the numbers suggest. So many people have given up looking for work, at least for now, that the economy is acting as if the unemployment rate were higher. That's why the Federal Reserve doesn't think inflation will even get back to the central bank's modest 2 percent target until 2018.
Republicans, though, haven't just rejected economics when it comes to inflation. They've also ignored the evidence when it comes to what their preferred policies would mean. All they have to do is look at Europe. It raised rates in 2011 to fight non-existent inflation, like Republicans have urged the Fed to do, which only succeeded in pushing itself back into a double-dip recession. To make up for that, the European Central Bank has had to do its own QE, and has even started to talk about extending that. The irony is that it's doing all this despite the fact it has the kind of inflation-only mandate that Republicans think would have stopped the Fed from doing so itself. It's reassuring that a single mandate might not matter much—former George W. Bush adviser Greg Mankiw thinks the Fed could have justified everything it did even with one—but Republicans don't seem to have noticed this.
If this is bad history, though, where does it come from?
Well, part of it is probably Reagan nostalgia, another Bush denial, and the last Obama-Must-Fail Syndrome. The fact, as Jim Pethokoukis of the conservative American Enterprise Institute told me, is that "a certain demographic of 1980s supply-siders" in the Republican Party are "always and everywhere on the lookout for inflation." Bringing it down was a big part of what made Ronald Reagan so popular, so they might think keeping it down will do the same for Republicans today.
But it's not just about explaining Reagan's successes. It's also about explaining away the economy's failures under George W. Bush—and in an ideologically comforting way. "Republicans are looking for an explanation of what went wrong in 2008," Pethokoukis said, "that doesn't blame the private sector." And the Fed is the perfect scapegoat. It really might have left rates too low for too long during the housing boom—although if that were true, inflation should have gone up more—but more than that, it's about the nature of the Fed itself. It's a bunch of bureaucrats deciding what interest rates will be for the entire economy. If the Fed didn't exist, the Tea Party would have to invent it. Indeed, the Fed has become a bête noire for the conservative grassroots who see it as "just another arm of the government" at the same time, Pethokoukis told me, that "the Republican Party has become more anti-government."
And finally—get ready for a bit of cognitive dissonance—it's about explaining President Obama's failures, and his lack of failures. The simple story is that whatever Obama has been for, Republicans have been against. Even when it comes to monetary policy. "We've had seven years of zero interest rates and the lousiest recovery in 75 years," said Stephen Moore, a leading conservative economist at the Heritage Foundation and an informal adviser to several GOP candidates. "So that's one reason a lot of us feel like it's time to get off the zero interest rate policy." The implication, he said, is that "zero interest rates haven't helped the economy." All that's happened, he continued, is "Wall Street" has gotten "addicted to zero interest rates like it's crack cocaine," and is "potentially creating another bubble." Now, that sounds like a reasonable enough concern, but it gets cause and effect backward. Rates are low because growth is low, not the other way around. If higher interest rates really wouldn't hurt the economy, then Europe's recovery should have been just as good as our own. It hasn't, not even close: their unemployment rate is still more than double ours. Moore, for his part, attributed Europe's double-dip not to their tight monetary policy, but rather to their "very Keynesian" fiscal policies—never mind that they have cut their budgets more than we have.
Then there was the debt crisis that never happened. Republicans were sure, just sure, that Obama's deficits would send interest rates soaring and the economy crashing. Paul Ryan even called it "the most predictable crisis we have ever had." But instead of spiking, interest rates actually fell to historic lows. Why? Well, Republicans had their suspicions. "They think the Fed is enabling Obama," Pethokoukis explained, by buying bonds to push down borrowing costs. Ryan went so far as to complain that "this looks an awful lot like an attempt to bail out fiscal policy." It's the Scooby Doo theory of QE: there would have been right about a debt crisis if it weren't for those meddling central bankers! But if Republicans were right that the Fed is the only reason interest rates are so low, inflation should have gone up instead. It's not like the Fed can keep rates lower than the economy needs them to be without overheating it. But that, to say the least, hasn't happened.
So conservatives have had to resort to one of two strategies to try to excuse their bad predictions: conspiracy theories or cherry-picking. Conservatives like Niall Ferguson insisted that inflation was "really" higher than the official numbers said it was, even though independent estimates like MIT's Billion Prices Project showed it going up the same amount. Meanwhile, others like Ted Cruz pointed at one or two prices that were going up more than the average—which, as a mathematical matter, must be true—and said that showed inflation was still a problem. Not only that, but they'd usually pick a price that the Fed has no control over, like beef, to "prove" their point. Higher interest rates, after all, wouldn't have done anything about the drought that pushed hamburger prices up. So it's all been about hyping up any hint of inflation—or insinuating that there's more than the numbers are letting on—because admitting that there isn't any would be admitting that they have been wrong about the Fed, and, perhaps, the entire economy.
It's not just their ideology and their grassroots activists pushing Republicans to worry about inflation. It's their money men too. Now, it's hard to draw a straight line between a rich donor's views and a candidate's, but it turns out that some of the biggest Republican donors have been some of the Fed's biggest critics. Home Depot founder—and Christie benefactor—Ken Langone wants the Fed to raise rates because "money deserves rent" and "an unnatural act, such as giving people money for nothing" will cause "unnatural things to happen." Hedge fund billionaire—and Rubio supporter—Paul Singer thinks the Fed is missing the hyperinflation in the Hamptons (and Aspen, too). Hedge fund billionaire—and Jeb, Christie, and Kasich donor—Stanley Druckenmiller is afraid the Fed is just inflating another bubble. Hedge fund billionaire—and Jeb backer—Ken Griffin says QE has actually cost the economy jobs. And casino billionaire—and Christie contributor—Steve Wynn doesn't see any difference between the Fed's bond-buying and what Bernie Madoff did.
Now, it isn't easy to explain why the billionaire class has turned against the Fed. Easy money is good for assets, and they have plenty of those. They should love QE—but don't. Maybe, as Brad DeLong argues, it's that they think the Fed is manipulating markets in an unsustainable way. Or maybe it's that they aren't as worried about expanding their empires with cheap money as they are about losing it to worthless money. Whatever it is, though, it doesn't really matter to Republican politicians. All they need to know, as Pethokoukis told me, is that "very successful hedge fund managers" who are "out there in the markets and are not some pointy-headed academic types" think "this is bad." That makes an impression, independent of the fact that they can add quite a few zeros to the candidates' Super PACs. It amplifies what they're already hearing from conservative activists: zero interest rates must be destroyed.
The lesson, then, is that bashing bureaucrats is good politics in the Republican primaries. Especially when you're saying that savers should get better returns from higher interest rates. But it's awful economics. Everything that's happened the last seven years has shown that inflation fears couldn't have been more wrong, but everything that's happening in the Republican Party is pushing them to continue to worry about inflation.
The only thing we've had to fear was fear of inflation itself—and, as the Republicans are showing us, we still do.