As for inflation, although Rick Perry says that monetary expansion is "devaluing the dollar in your pocket," every indicator available shows that inflation is low. After a slight uptick due to commodity prices earlier this year, it has settled down again, with two-year inflation expectations at only one percent. So why isn't the Fed doing more to reduce unemployment?

THE FEDERAL RESERVE VS. 'POLITICS'



The traditional worry about central banks is that they will be too willing to stimulate the economy, since everyone likes growth and no one likes a recession. In particular, the fear was that if central bankers took orders from elected officials like the president or Congress, it would stimulate the economy before every election, potentially creating an inflationary spiral. This is why the Federal Reserve is so independent of the rest of the government--so it can take action against inflation, even when the executive and legislative branches want more growth.

What's bizarre today is that we're seeing exactly the opposite of the traditional fear. Unemployment is high, the economy is stuck, and all the president and Congress can talk about is deficit reduction. In this situation, the Fed's independence should be a virtue: Ben Bernanke should be saying, "I know all those politicians have lost their minds, but I'm going to do what's right: I'm going to save the economy."

That's exactly what Rick Perry is afraid of--that Bernanke will help the economy--because he knows that a bad economy is his best shot at becoming president. And that's why he's playing politics with the Federal Reserve (using the strange non-logic that if Bernanke just does his job and follows the dual mandate, he's the one who is playing politics).

Monetary expansion is especially important when it's abundantly clear that Congress and the White House have their minds set on a fiscal contraction. Some people seem to think that cutting the deficit can actually stimulate the economy. The empirical evidence is that it doesn't work when the economy is weak (or maybe not at all, when you correct for confounding factors). But monetary policy can at least limit the damage to the economy caused by tight fiscal policy. If the central bank aggressively reduces interest rates, it can counteract the effect of reckless budget-cutting. (See the IMF's World Economic Outlook from last fall.)

WHAT THE FED CAN DO



The Federal Reserve can see what Congress is doing to an already weak economy (spending cuts on top of spending cuts), and they should be actively correcting for it. Yes, short-term interest rates are stuck at zero and can't go any lower, but that doesn't rule out another round of "quantitative easing"--buying longer-maturity bonds to reduce long-term interest rates.

The people calling for more aggressive action from the Fed aren't left-wing radicals. They include former Fed official Joseph Gagnon, Reagan administration official and well-known deficit hawk Bruce Bartlett, and former IMF chief economist Kenneth Rogoff, co-author with Carmen Reinhart of the widely-cited This Time Is Different, a history of financial crises. When Reinhart and Rogoff said that bad things would happen if the national debt exceeded 90 percent of GDP, that became the hottest issue in popular economic debates (and was cited by Paul Ryan as a reason for budget-cutting). But when Rogoff says we need more aggressive monetary policy and even higher inflation to recover from the current economic crisis, people change the subject.