A Gold Bug Gone Wrong

Judy Shelton is our favorite Gold Bug—so would that the pusillanimous Senate GOP had had the fortitude to drive her Fed nomination to the finish line in December 2020. She’d be giving the Keynesian priesthood domiciled in the Eccles Chapel fits on a daily basis.

Alas, even sound minds can skid into the wrong-think ditch from time to time, and, boy, did she take a spill on bubble vision this AM. She basically said that the Fed should stop raising rates because a recession won’t cure the inflation problem anyway.

Of course, there is a fair amount of intellectual sleight-of-hand in her Lafferian refrain that low unemployment and real growth are not inflationary, and that the Fed’s targeting of a recession is therefore perverse.

Well, yes, but so what?

You need to unpack that whole sentence because it’s a pure straw-man. Even the Keynesians say that more jobs and more growth is a good thing–or at least 95% of the time outside of so-called overheated cyclical peaks. And the Fed heads insist that they are actually trying to thread the needle, bringing inflation to heel while avoiding recession. To claim that they are actually seeking recession is to put words in even their incessantly flapping jaws.

Unfortunately, Judy Shelton has a weakness for the demagogic claim of Art Laffer that the supply-side science eschews any need for economic pain in the world: Just implement the right policies and you instantaneously get abundant growth, a cornucopia of jobs, a balanced budget, flourishing families and a land of milk and honey generally, world without end.

Nor do we exaggerate. Back in the day, Laffer and Jude Wanniski actually argued that the mere announcement effect of a 30% Reagan tax cut would instantly rejuvenate Jimmy Carter’s beleaguered stagflationary economy, cause markets to dramatically reprice a glowing future with drastically lower bond yields and higher stock prices, and balance the budget for good measure.

No “root canal” of recession and painful spending cuts need apply!

As it happened, the practical GOP politicians of the day smirked for good reason. They were believers in the old time religion not only of balanced budgets, but also of what amounted to original economic sin. Namely, the view that the cumulative propensity of politicians and private speculators alike to pursue the will-o-wisp of free lunches and easy riches periodically results in the build-up of fiscal and financial excesses, imbalances and malinvestments that can only be purged by the cure of recession and austerity.