The two combatants, Paul and Bernanke, have sharply opposite views in ideology and policy-making.
Paul, a well-known libertarian, belongs to a school of thought that rejects Keynesian economics, and abhors fiscal deficits and a government that polices the world. He supports the market mechanism, including for interest rate determination, supports bankruptcies, and dislikes bailouts and moral hazards, advocates the gold standard and a safe and stable dollar, and is critical of the law that banishes the use of gold in domestic circulation.
Bernanke's approach to economic policy is well known and speaks for itself. As a key policy-maker under the George W Bush and Barack Obama administrations, he was the architect of extremely loose monetary policy that earned him the alias "Ben the helicopter" and has provided the foundation for recent financial developments in the United States, resulting in financial turmoil with a severe recession, unprecedented peacetime fiscal deficits and rising public debt. He is a strong supporter of Keynesian economics and quite relaxed about the dangers of inflation and inflationary expectations. His near-zero interest rate policy has reduced income from savings and distorted prices.
Asia Times, 4 January 2011
ReplyDeleteThe fascinating two-year "rumble" that has been threatening since the November 2010 mid-term United States elections will unfold after the new congress is seated this week. The feature bout on the card will pit: in the right corner, Ron Paul, the Texas Republican congressman, a graduate of Duke University Medical School, 1988 presidential candidate and author of the best-selling 2009 book End the Fed; and in the left corner, Ben Bernanke, chairman of the board of governors of the US Federal Reserve System, MIT PhD economist, former chairman of the Council of Economic Advisors and Fed governor.
ReplyDeleteThis dream prize fight should take place because the Republicans have "mischievously" nominated Ron Paul as the chair of an important sub-committee of the House Financial Services Committee, namely the sub-committee on domestic monetary policy and technology, which scrutinizes US monetary policy.
Since the nomination of Paul to chair the domestic monetary policy sub-committee, media and academic circles have become intrigued as to how the relationship between the congress and the Fed will evolve? In particular, to what extent will he be able to implement the ideas that he has advocated since the early 1970s, calling for sound money, a return to gold, and culminating with the elimination of the Fed?
ReplyDeleteTo say that Paul faces great challenges is an understatement. If his tenure as a head of the sub-committee ends with no change in US monetary policy and at the Fed, then all of his ideas could be seen as rhetoric, with his supporters becoming discouraged at discovering the gap between his ideas and political realities.
If, however, Paul succeeds in reforming US monetary policy and the Fed, he would set an important historical precedent, with his supporters gaining confidence in their ability to make hitherto difficult changes in the US financial system.
Even before round 1, Paul has started to dampen expectations. Although he has re-emphasized his belief that the Fed should be abolished, he has cautioned that turning ideas into reality takes time and effort. He has noted that his first action on the job will be to "think things through and not over-do things too soon". When asked if he intends to get rid of the Fed, the congressman replied: "Not right up front, but obviously that is the implication. Even in my book about ending the Fed, I talk about not turning the keys and locking the doors, I talk about a transition."