Donald Trump doesn't seem like the kind of candidate who's thought much at all about policy, but, despite that, there are still some things he appears to understand more than the rest of the Republican Party.
Take the Federal Reserve. Trump says that even though he'd probably replace Federal Reserve Chair Janet Yellen, he actually thinks she's done a "serviceable job." That's because, as he puts it, "the best thing we have going for us" is that she's kept interest rates so low. Sure, he admits that "the problem with low interest rates is that it's unfair that people who've saved every penny, paid off mortgages, and ... now they're getting one-eighth of 1 percent." But you have to balance that against how much low interest rates help the rest of the economy. And that, as Trump points out, is quite a bit right now. Low rates keep the interest on the debt low, and let us invest in things we're going to need to eventually — like, he says, the military and infrastructure — for less than we otherwise would.
Trump is actually making some sense.
Although we shouldn't give him too much credit for this. It was only six months ago, after all, that Trump was saying the opposite. "This is a political thing," he told Bloomberg News in October, "keeping interest rates at this level." Specifically, he thought that "Yellen is keeping rates too low, too long" to help President Obama, and that the result, as he later explained, was an "economic bubble" that could turn into a "very massive recession" down the line. None of this, of course, is true. The Fed has kept interest rates so low not because the White House wants it to, but because the economy needs it to. That's what it's supposed to do when growth, inflation, and inflation expectations are all lower than we want. And while the stock market might be a bit overvalued, it's nothing like the craziness of the dotcom or housing bubbles.
But even when Trump was wrong here, it wasn't really for ideological reasons. It was for partisan ones. What do I mean by that? Well, if you read between the lines, Trump wasn't so much saying that easy money wouldn't work, but that he was afraid it would — just when a Democrat was in the White House. It's the difference between deluding yourself and being delusional. So, whether he's wanted to admit it or not, Trump has at the very least seemed to understand that low interest rates are what the economy needs right now.
That's a lot more than you can say for other Republicans. Just look at House Speaker Paul Ryan. He's said he gets his ideas about monetary policy from a pro-gold speech in Ayn Rand's "Atlas Shrugged" — which, to be clear, is a work of fiction — and it shows. In 2008, he wanted to force the Fed to stop worrying about unemployment, because he thought that would create too much inflation — except that inflation has fallen to 50-year lows since then. In 2010, he warned the Fed against buying bonds, because he thought it "risks higher inflation and a depreciated currency" — except that, once again, inflation has fallen and the dollar has risen since then. And in 2011, he all but accused then-Fed Chair Ben Bernanke of trying to "debase" the dollar — except that it's up 22 percent since then.
It's just been one bad inflation prediction after another in a never-ending effort to justify raising rates at a time when the Fed should have been cutting them if it could. And at least in part because a young adult novel for libertarians says so.
It wasn't always this bad. You only have to go back 12 years to see a Republican administration defending the idea that "aggressive monetary policy can reduce the depth of a recession." Or just three years to see a Republican appointee — you might remember Ben Bernanke — putting that idea into practice. But for that, he's become a persona non grata within his onetime party. Why? Part of it is that Republicans think the Fed's zero interest rates and bond-buying have just enabled Obama's big government. Another is that Republicans who came of age in the 1970s see inflation around every corner and under every bed.
But the last part, as Paul Krugman points out, is that it's always been a bit awkward for Republicans to say that government is the problem, except for the part of the government that sets interest rates for the whole economy. That's why there's always been an undercurrent of conservative thought that's wanted to bring back the gold standard or something similar, which has become the main one now that the Fed's post-crisis policies have called more attention to itself. Whether it's Ted Cruz or Paul Ryan, Republicans like the idea of getting the government out of the business of monetary policy as much as possible. In other words, they've put their faith in rocks rather than economists, including Milton Friedman. And they've maintained this faith even though it's been proved wrong over and over and over again.
The result is a sentence I never thought I'd write: Donald Trump understands monetary policy better than Paul Ryan. Sad!