The tripling of the money supply, or, there’s a reason they pay Dick Morris the big bucks, right?

by Andrew Gelman on April 14, 2009 · 7 comments

in Political Economy

Bill Peterson at Chance News reports that Dick Morris writes:

In the last five months, according to the Federal Reserve Board, the money supply in the United States has increased by 271 percent. It has almost tripled.

As Morris notes, the economy has hardly tripled during that time, so where did the money come from? I was thinking maybe the Fed improved its data collection procedures and started counting the quarters behind the cushions in couches and under car seats, But, no, it’s nothing so fun as that. Peterson did a little web searching and writes:

Here is a link to the March 5 Federal Reserve Statistical Release that was current at the time of Morris’s posting. At the bottom of the first table there, we read that for the 3 Months from October 2008 to January 2009 the M1 money stock grew at a seasonally adjusted annualized rate of 27.1 percent.

What it means, that the money supply has been going up (or whether we should focus on M1 at all), that’s another story, to which I’ll defer to macroeconomic experts. To put this more plainly, Morris discredits his cause by making ridiculous, mockable statements. I can only imagine that it also reduces his ability to get hired as a political consultant, but maybe it makes him in more demand as a speaker and an author.

Near the end of this column, Morris writes:

None of this [problem with the growth of the money supply] should come as any news to Obama. He likely knows all this. But he is determined to pass his agenda of bigger government, nationalized healthcare and vastly greater spending even at the price of inflation and subsequent recession. He puts ideology first and the economy a distant second.

I don’t think so. Obama’s #1 economic priority has got to be for the economy to improve in the year 2012, at which time a presidential election is coming up. You could very well argue that he might not care about the long term (i.e., after 2016), but the conventional wisdom (which I believe, and I expect Obama and his advisors believe too) is that he needs the economy to improve so as to get reelected. I suppose Morris might be arguing that Obama’s policies will be stimulative up to 2012 and then lead to a recession around 2014, but that’s a bit too extrapolative for my taste.

It might be that Obama’s ideology is blinding him to the potential adverse consequences of his policies—just as it might be that Morris’s ideology or professional interests are blinding him—but, if anybody has an interest in the economy improving, it’s Obama, Summers, and the rest. Again, by labeling Obama as an ideological extremist, Morris is forfeiting his chance to make a more substantive point about economic policy.

If you don’t think Obama’s policy is going to work, is your best argument really to make the implausible claim that Obama knows his policy won’t work but is just so ideological that he’ll do it anyway? I think it would make more sense to argue that Obama is well-meaning but mistaken. Although presumably not so mistaken as to think that a 27.1% annualized growth is the same as 271% over five months.

P.S. Could I get my very own column in The Hill? I promise not to get any numbers off by a factor of 24 . Also, I promise not to write columns saying Sarah Palin saved GOP from landslide defeat.

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