George Will's Ridiculous Monetary Policy

George Will visited the Richmond Federal Reserve and--as Jim Pethokoukis points out--learned all the wrong lessons. It is completely unclear what point Will is trying to make. At one point he discusses how enamored he is by a bar of gold in the lobby, and then he goes on to claim that Fed shouldn't fulfill its statutory mandate because it didn't see the Great Recession or Great Depression coming.

Anyway, Will doesn't really make a coherent argument about anything, but this struck me as particularly silly:

Fed policy, which has failed so far, can also fail by succeeding. If strong economic growth begins, interest rates will rise substantially, and the cost of debt service will cause the deficit to explode. 

Will is noting that if Fed policy succeeds in promoting strong economic growth, then interest rates will rise. This is correct. He is saying this would still represent a failure, which is ridiculous. Obviously higher interest rates will mean Congress will need to reduce the deficit--a policy Will supports, by the way--but the strong economic growth will make this easier. Lower unemployment means that there will be more tax revenue and few citizens requiring government benefits.

Furthermore, what is the alternative? Should we purposely prevent recovery in order to discourage investors from moving money from government bonds to the private sector. Surely, this isn't Will's preferred outcome. Should we raise interest rates now so that the government needs to reduce deficits and destroy the economy? The ECB did this in 2011 and it was a disaster.

Monetary policy is complicated, and Will isn't an economist. But conservatives like Pethokoukis are taking the subject seriously and making policy arguments based on actual data--instead of just admiring Gold bars.

At the end of WWII, the U.S. government faced a challenge: demobilization was probably going to cause a recession and it was going to be tough to reintegrate all of the soldiers into the workforce. But nobody was writing columns saying "well even if we beat the Nazis we will still lose because we face these other challenges".

The fact that we face challenges doesn't mean we should give up.