Fed Swings Elections for Republicans

Republican Ben BernankeThis is totally not surprising. Two researchers at the University of Michigan have looked at what the Fed does regarding interest rates when a Republican is the incumbent versus when a Democrat is. As we all know, if the economy is doing better coming into an election, the President is far more likely to be reelected. Also his party is more likely to win an open seat. The Fed can affect this by raising rates (thus slowing the economy) or lowering rates (thus quickening the economy).

It turns out that the Fed is not as likely to do this when it will help Democrats. This shouldn’t be surprising. Our current Fed Chairman is a Republican. So was the the one before that. It tends to be a post filled by people from the finance industry and they don’t tend to be liberal.

William Roberts Clark and Vincent Arel-Bundock say in the abstract of their paper soon to appear in Economics and Politics, Independent But Not Indifferent: Partisan Bias in Monitory Policy at the Fed (PDF):

We show evidence from the United States that interest rates (a) decline as elections approach when Republicans control the White House, but rise when Democrats do; and (b) are sensitive to the inflation rate (output gap) when Democrats (Republicans) are in the White House. Thus, the Federal Reserve is a conditional inflation hawk. Since the Fed became operationally independent in 1951, the Republicans have exhibited a decided electoral advantage in presidential politics.

This should be an outrage. It should be on the front page of all the newspapers. There should be Congressional hearings. People should be marching in the streets. But instead, this paper will cause not a ripple. All that will be heard is the sound of silence.

Afterword

Note that many people—most notably Paul Krugman—have been complaining that Bernanke has not done enough to help the economy and that he has not done what he had for years written should be done in this situation. Occasionally, people would gently suggest that it might be partisan—he might be in the tank for Romney. But no one took that seriously. Only a kook could think that the Fed Chairman would act in such a partisan manner! Maybe the kooks were the ones who thought Ben and Alan could check their Republican sympathies while doing their “non-partisan” jobs.

Thanks to Binyamin Appelbaum for alerting me to this.

Update (25 October 2012 7:41 pm)

Matt Yglesias sends us to the cream of Jesse Eisenger’s article about Freddie Mac. It seems it isn’t just Republicans at the Fed who want to keep the economy weak to help their partisan friends get elected:

In closed door meetings, two Republican-leaning board members and at least one executive resisted a mass refi policy for an additional reason, according to the interviews: They regarded it as a backdoor economic stimulus.

Look: I know I’m a partisan (although one who calls out the President when he’s wrong). But I truly don’t think that Democrats would do this. It isn’t our style. The repugnant push to destroy the economy (and countless lives as a result) in the name of political advantage is the Republican and only the Republicans. (I’m talking about normal people here and not some pathological case.) This disgusts me.

Update (26 October 2012 8:39 pm)

William Roberts Clark provides a good overview of his paper over at The Monkey Cage. Check it out.

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About Frank Moraes

Frank Moraes is a freelance writer and editor online and in print. He is educated as a scientist with a PhD in Atmospheric Physics. He has worked in climate science, remote sensing, throughout the computer industry, and as a college physics instructor. Find out more at About Frank Moraes.

0 thoughts on “Fed Swings Elections for Republicans

  1. I’ve been super busy the last few days, and I haven’t been online at all. I have a lot of catching up to do. This is the last article I read! At least I’ll enjoy the process, unlike going through 140 e-mails (which is probably a paltry amount for a week in comparison to what you usually get).

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