A commenter named Cameron sent me this interesting exchange from the recent GOP debate:


“Yes. Now, let’s be clear, there is a role for the Federal Reserve — what the Fed is doing now is it is a series of philosopher-kings trying to guess what’s happening with the economy. You look at the Fed, one of the reasons we had the financial crash is throughout the 2000s, we had loose money, we had an asset bubble, it drove up the price of real estate, drove up the price of commodities, and then in the third quarter of 2008, the Fed tightened the money and crashed those asset prices, which caused a cascading collapse. That’s why I am supporting getting back to rules-based monetary system not with a bunch of philosopher-kings deciding, but tied…”


“Sir, I understand that. I just want to be clear, if you don’t mind, that millions of depositors would be on the line with that decision. And I just want to be clear. If it were to happen again, for whatever the reason, you would let it go, you would let a Bank of America go?”


“So let me be clear. I would not bail them out, but instead of adjusting monetary policy according to whims and getting it wrong over and over again and causing booms and busts, what the Fed should be doing is, number one, keeping our money tied to a stable level of gold, and, number two, serving as a lender of last resort.”

I don’t agree with Cruz on gold, but do agree that the tight money policy of late 2008 made the banking crisis worse. (And I also agree with him on the need to replace philosopher kings with strict policy rules.) When I began making this claim in late 2008 most people gave me a funny look, as policy was widely seen as being highly expansionary. More recently Vasco Curdia showed that money got much tighter in 2008, and in his recent memoir Ben Bernanke admitted the Fed erred in not cutting rates in September 2008. And now this view shows up in the presidential campaign debate. I can’t prove the implied claim in the post title, but that’s my perception. Most economists I meet still think Fed policy has been expansionary since 2008. Good for Cruz, now if we could only sell him on NGDPLT.

(And no, I am not endorsing him, and will not endorse any candidate in 2016.)