Many liberals, myself included, have long harbored some sympathy for Ron Paul. I suspect that this is not only because of his refusal to follow the neo-conservatives on issues like civil liberties, but also because the man, like a squirrel, has always seemed so very harmless. As long as his chances of actually running the country remained about nil, it was easy to concentrate on the refreshing and the brave of his positions and to ignore the paranoid and the bizarre.
But now that Rep. Paul may be on the cusp of winning the Iowa Caucus, it's time to stop our collective chuckling when he spouts ideas like boarding up the Federal Reserve and returning to the gold standard. Now it's time to refute this position directly. And even if you don't think that Paul has any realistic chance of eventually winning the nomination or the election, beware: Paul may be the only candidate who explicitly advocates the adoption of a metallic standard, but it's become the mainstream Republican position to favor a hard-currency, anti-inflationary monetary policy and to oppose further quantitative easing (purchases of U.S. Treasury bonds by the Fed with printed money).
Ron Paul and the other Republicans advance this position by disguising their true agenda with nationalistic language. Talk of "strengthening" the dollar implies that a tight monetary policy is the natural path for a strong, honest, and prosperous country, and by extension, that the easing the Fed has engaged in since 2008 has somehow "weakened" America.
But make no mistake: "strengthening" the dollar by ending quantitative easing or raising interest rates is not a principled libertarian stand, and it has nothing to do with our "national character"; rather, it is a highly politicized attempt to benefit the financial sector and large corporations at the expense of almost everyone else.
The fact is, tightening monetary policy doesn't make the dollar 'stronger' at all: it just increases the dollar's value against foreign currencies. Nice as this may sound for those on holiday abroad, such an outcome would actually hurt the vast majority of Americans. Why? A more expensive dollar would harm America's export-oriented manufacturing sector: when the value of the dollar increases, so too does the cost of American exports, since their value is denominated in dollars. A more expensive dollar therefore damages the ability of American exporters to compete with foreign manufacturers, and the end result is more outsourcing of factories, fewer jobs for middle class Americans, and a slower economic recovery.
But like any economic policy, monetary tightening would create both winners and losers. And while ordinary Americans would be the losers, the winners would be the usual darlings of the Republican Party: Wall Street and Wal-Mart. First, the financial sector would benefit enormously from an overvalued dollar because speculators make a profit by (among other things) buying up assets denominated in foreign currencies. When the value of the dollar increases against other currencies, the same amount of dollars can now buy more foreign assets than before, and hence the financial sector makes a larger profit. Second, the same logic explains how large corporations that import goods into the U.S., like Wal-Mart, would also benefit; when the value of the dollar rises against other currencies, a set amount of dollars buys more goods in China or India than it did before, and these goods can be re-sold in the U.S. at a profit.
When pressed on this point, Republicans may respond that their goal is only to defend America against high inflation, which they argue will result from quantitative easing. But this is nonsense. Inflation in America is running at near-historic lows- too low, indeed, to facilitate an economic recovery. Pace Glenn Beck, those losing sleep over the specter of hyperinflation in the U.S. ought to place their concerns elsewhere.
Finally, one may rightly point out that the president's ability to influence monetary policy is limited, as the Fed has legal independence from Congress and the Executive Branch. However, a Republican president would certainly try to use the 'Bully Pulpit' to pressure the Fed into following that president's agenda. (Ron Paul tries to do this regularly, as did Rick Perry this summer when he said that Ben Bernanke was committing "treason".) Unfortunately, there's reason to believe that this may actually affect the Fed's decisions. And this should be frightening. The Fed's actions since 2008 have provided the only rope that keeps America from plunging into the pit of depression, and to sacrifice these policies on the altar of the banks would represent a stinging betrayal of the majority of Americans.