The Agenda

Noam Scheiber on the ‘War Against the Fed’

Noam Scheiber, a reporter at The New Republic who has done an able job of covering economic policy debates, has written a piece on the right’s “war against the Fed” that conflates many, many different issues in a way that doesn’t do justice, in my view, to the actual disagreements over quantitative easing.

Noam begins his article with a few cheap shots against Sarah Palin. There are plenty of legitimate criticisms of Sarah Palin’s policies and her public persona, and I found Noam’s lede surprising in light of his usual style. But that’s hardly the most important part of the piece.

Over the past two years, as the Fed has come under increasing fire from outraged Tea Party activists, it’s been tempting to impute a principled conservatism to all their fulminating. In surveying last week’s economic developments, for example, Washington Post columnist Steve Pearlstein  highlighted the “criticism  of the Federal Reserve’s plan to pump additional money into the economy” by “Sarah Palin and other hard-money conservatives.”

But the truth is that, while “hard-money conservatives” certainly exist, they have little in common with Palin and her supporters. These conservatives have historically been economic elites, whereas the Palinites have a much more populist bent-”humble folks like me,” as Palin describes her ilk.

I’m not sure this is a very rigorous reading of history. The politics of monetary policy didn’t end with “free silver.” Consider the following from the Tax Policy Center:

Tax units in the lowest income quintile pay a slightly higher average effective tax rate on corporate income (passed through to them as shareholders) than units in the next two quintiles. That outcome occurs because low-income elderly households get a disproportionately large share of their income from their retirement savings.

Could it be that retirees, a nontrivial part of Sarah Palin’s fan base and the broader right-of-center political revival we’ve seen since the 2008 presidential election, are receptive to the hard-money message by virtue of relying heavily on retirement savings? Does this merit consideration, given that the age composition of the conservative movement has changed considerably since the Reagan years, as Ruy Teixeira has observed on many occasions? A constituency that is older is presumably more attuned to the threat — real or imagined, I should stress — of rampant inflation. Moreover, a constituency that lived through the high inflation years of the 1970s might have a different take on the issue for voters in my age cohort. 

Noam does address what ought to be a central concern at the tail end of his piece:


Now, the Tea Party is generating a formidable attack on the Fed’s monetary-policy prerogatives by fusing longstanding critics of easy money (the Pauls) with the people who just want to rail against elites. If you look, for example, at the Times poll of Tea Partiers in April, you see that the movement draws heavily from two distinct socioeconomic groups: those with family incomes between $50,000 and $75,000 (which includes many working class whites) and those with family incomes over $100,000.

It’s not obvious to me that households earning $74,000 and households earning $101,000 belong to distinct socioeconomic groups. And when we consider that a disproportionate number of Tea Partiers are older, a household income in the range of $50,000 to $75,000 might reflect relative affluence during the prime-age years before retirement.

Also, the idea that a large component of the center-right coalition consists of “people who just want to rail against elites” strikes me as ungenerous, though it does give us some insight into how some people perceive the political debates of our time. 

Rand Paul inspired endless hand-wringing on a blog of hard-core supporters last November after saying he’d welcome Palin’s help on the campaign trail. “Sarah Palin is an idiot and we don’t like her representing Rand Paul. But it’s his choice. We don’t have to support everything he does,” went one typical comment.

Can’t say I’m very confident about the reliability of this evidence as a window into coalition-building. 

But, as a candidate, Paul worked furiously to achieve his fusion—ditching some of his father’s baroque detours into monetary history and playing up the argument’s populist appeal, often disingenuously.

Again, note that this “fusion” might not be a fusion at all, if the two “distinct” socioeconomic groups in fact share similar values and aspirations, and represent the same kind of voter at different points in the life cycle. That is, the retirees have somewhat lower incomes and the prime-age workers have somewhat higher incomes. This is obviously not all of the story, but it’s undoubtedly part of it. 

“[M]any of the people who have been gravitating to the Democrat Party are working class,” he said at an October 2009 event. “And I think our message can resonate with them. Because … the rising prices at the pump and in the grocery store. Who’s hurt worst by those? People on fixed incomes and those on the lower part of the socio-economic ladder.” As Paul’s Senate victory shows, the project is succeeding beyond expectation.

Again, isn’t it odd that Noam’s analysis paid so little attention to the concerns of people living on fixed incomes? A more constructive essay might have argued that people living on fixed incomes should not be concerned about the threat of inflation, because that threat is chimerical. Noam certainly gestures in that direction, but the bulk of the piece centers on quirky and not terribly convincing psychoanalysis.

That’s alarming for two reasons. First, the level of anger that must exist before poorly informed voters work themselves into a frenzy over interest-rate decisions intended to benefit them has to be pretty intense—so much so as to be politically destabilizing.

There is a lack of precision here. What does it mean to be worked into a frenzy? Is a frenzy what we’ve seen? And what do we mean by politically destabilizing? Did Sen. Schumer work voters into a frenzy over DP World, and were the resulting Democratic victories in 2006 “politically destabilizing”? If Noam has something more destabilizing in mind than an election result, I’d be curious to know more about that something. 

Second, this turns out to be the latest, most audacious step in a decades-long effort by conservative elites to enlist the working class in undermining institutions that were previously insulated from politics, and which can only really function outside the political realm.

This is a leap. One premise, if I’m understanding this correctly, is that central banks can’t function under political control. While it’s certainly true that independent central banks have grown more common in recent years, part of the legacy of the fraying Washington Consensus, it’s not obvious that the Bank of England didn’t function before Tony Blair’s tenure. 

Under the Bush administration, this coalition did lasting damage to our ability to competently fight wars, defuse existential climate threats, and generally advance scientific knowledge. Now, it’s coming after the most basic functions of the Fed.

Note the number of unexamined assumptions in the excerpt above. 

Noam’s class analysis is wanting:

But more than anything else, the Pauls represent the interest of the affluent and educated. After all, the people most worried about the debasement of the currency are the people who, well, have a lot of currency. On the other hand, the working class, who typically have more in the way of debt than assets, actually benefit from inflation, since it eats away at the value of their mortgages and credit card bills.

Which working class? I assume that Noam is using the “non-college-educated” definition. But of course non-college voters are very diverse. Some are more indebted than others, and, as we’ve discussed, many are retirees. The “typical” working class voter is difficult to divine: African American and Latin working class voters, and working class voters who are marginally attached to the labor force, tend to vote for Democrats and are, I assume, indifferent to political appeals from Ron and Rand Paul and Sarah Palin. Could it be that the component of the working class that is older and less indebted is the component that is drawn to these arguments? That would certainly clear up the mystery here.

Likewise, when the Pauls rail against Social Security and Medicare, they’re being perfectly true to their class, since the two programs downwardly redistribute income.

This isn’t so straightforward. Older Americans are far less likely to live in poverty than children, thanks in part to Social Security. And TPC conducted a study on the broader distributional impact of the program back in 2001, and they cited some interesting findings:

The view that OASI redistributes income to the less well-off has been challenged, however, by recent research using longitudinal data sets. Gustman and Steinmeier (2000) note, for example, that the progressive benefit formula in OASI applies to earnings of individuals, not couples. Much of the apparent redistribution of OASI takes place within couples, with high-earning workers contributing to the benefits of their low-earning spouses. Most of the remaining redistribution is eliminated if one counts the potential earnings of nonworking spouses (who receive substantial benefits from OASI) in a measure of total lifetime earning capacity. Coronado, Fullerton, and Glass (2000) make these same adjustments and also incorporate mortality probabilities that differ by potential lifetime income. When they adjust for the longer life spans of those with higher incomes, they find that the Social Security system is on balance regressive. [Emphasis added.]

Indeed, this could explain why the grassroots right has been so divided over Social Security reform. TPC’s own analysis yielded a different conclusion [PDF]:

We find that OASI is becoming moreredistributive towards lower income groups over time, even as net benefits decline, mostly because of changing demographics and earnings patterns of the workforce.

Either way, this isn’t what we call a “no-brainer,” as Noam assumes. 

It’s part of the reason Ron Paul’s presidential campaign took off on college campuses and online, two places where the affluent and educated congregate. (By contrast, unpublished data from this recent Washington Post poll shows that college grads are much more likely than non-college grads to have an unfavorable view of Palin and to believe she’s unqualified to be president.) One of Ron Paul’s most indispensable online activists was an early Google employee who sold his stock at the peak of the market.

It’s incredible that this is being marshaled as evidence for anything. 

There is a reasonable, smart critique of Fed-bashing — check out Josh Barro’s “Mend the Fed,” published in June in National Review. My sense is that Fed-bashing of the kind Josh describes is meaningfully distinct from concerns about QE. Precision is helpful in this kind of conversation, provided your goal is to do more than whip people into a frenzy. 

I should stress that I’m a great admirer of Noam’s work, particularly his recent writing on consumer spending and debt levels.


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