Do you remember the great inflation scare of 2010-2011? The U.S. economy remained deeply depressed from the aftereffects of the burst housing bubble and the 2008 financial crisis. Unemployment was still above 9 percent; wage growth had slowed to a crawl, and measures of underlying inflation were well below the Federal Reserve’s targets. So the Fed was doing what it could to boost the economy — keeping short-term interest rates as low as possible, and buying long-term bonds in the hope of getting some extra traction.
But Republicans were up in arms, warning that the Fed’s policies would lead to runaway inflation. A Congressman named Mike Pence introduced a bill that would prohibit the Fed from even considering the state of the labor market in its actions. A who’s who of Republicans signed an open letter to Ben Bernanke demanding that he stop his monetary efforts, which they claimed would “risk currency debasement and inflation.”
And supposedly respectable Republicans engaged in conspiracy theorizing, suggesting that the Fed was secretly in league with the Obama administration. Paul Ryan and the economist John Taylor declared that the Fed’s policy “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.”
Of course, all these warnings were totally wrong. Inflation never took off. Although almost none of the people who waxed hysterical over inflation have so much as acknowledged having been wrong, Bernanke, Fed economists, and Keynesians in general were proved right: printing money isn’t inflationary in a depressed economy.
But what lay behind all these dire