In a previous post I was exploring a conspiracy theory regarding a plot to conduct a coup of the Roosevelt Administration that I stumbled upon while studying political philosophies. The plot is said to have been hatched by wealthy industrialists who were opposed to the United States repealing the gold standard, and is very vaguely attached to Prescott Bush by propagandists. I was curious about this and started studying the appointment of Chairman Bernanke during the Bush administration to see if there was any discernible intent to implement tighter money than what otherwise would be required.
I found this article in the New York Times from 2005 that states (emphasis added):
Mr. Bernanke was not the first choice of ardent supporters of supply-side economics, who favor deep tax cuts and tight monetary policy as the best medicine to strengthen the economy. They tended to favor R. Glenn Hubbard, an architect of Mr. Bush’s sweeping tax cuts and one of the leading candidates. Others in the White House leaned toward Martin S. Feldstein, a Harvard economist who served as President Ronald Reagan’s chief economic adviser.
Later it states a quandary for the start of Bernanke’s term, suggesting the markets expected some tightening of policy, but they expected a pause in the tightening as Bernanke’s term commenced.
Based on the price of a futures contract tied to Fed policy, investors are expecting three more rate increases, pushing the target rate to 4.5 percent from the current 3.75 percent, before the Fed pauses or stops altogether…
At exactly the moment he is trying to establish himself as an inflation fighter and his independence from the Bush administration, Mr. Bernanke — if he endorses the pause in raising interest rates that many in the markets expect — could appear to be moving in the opposite direction.
Aside from the obvious hubris glaring from this statement, and going back over what the Fed actually did in 2006, it seems that there might actually be something to the assertion. The Fed Funds rate increased by 75 basis points between the time Bernanke took office and July 2006; three more 25 basis-point rate increases than the markets expected. Then, if we look at what was happening to NGDP growth, we can see a decline thereafter that ended in the plunge of 2008-9. In the intervening period, the Fed decreased the FF rate by 1.5% in 2007, starting in August, and another 3% by the end of 2008; all the while still sounding hawkish, threatening rate increases.
What I am curious about is how tight money came to be a part of supply-side political economics, or why. I haven’t been able to substantiate it, but I keep reading references to it as in this article and others. I don’t recall seeing anything about it in the media while it apparently happened, and I am interested in pinning to down to individuals who advocated it.