Republicans turn to John Taylor

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Congressman Paul Ryan consults Professor Taylor on a frequent basis. (US Government)
Stanford University Economics Professor and Hoover Fellow John Taylor was recently called by Bloomberg Businessweek the Republican’s “shadow Fed chairman.” Scott Lanman, [noted]( that Taylor has the ear of several top Republican leaders who look to him for alternatives to the economic policies of Obama and his economic circle. Followers include House Speaker Boehner, Majority Leader Cantor, and “Presidential hopefuls.” Taylor also advised the McCain/Palin campaign in 2008.

Among other classes, Taylor has taught Economics 1A, and even penned the textbook still used by the Economics 1A/B series. All of those students who took Economics 1A with Taylor will remember talking about the Taylor Rule quite a bit. Certainly, this was the right person to teach it. The rule is used to determine the appropriate interest rate, based on inflation and growth. Taylor argues that a deviance from the rule in the past decade was one of the contributing factors to the current economic crisis.

But according to Amity Schlaes of Bloomberg, Taylor has recently spoken about a second rule, the Taylor Rule II. Schlaes writes that the rule simply, “predicts what the central bank will do.” It states that the Federal Reserve will alternate over long periods between “discretion-based decisions and loose money” and “rules-based choices and tighter money…” If the Fed’s decision-making procedure is truly cyclical, then perhaps Taylor’s requests for tighter money and greater adherence to the Taylor rule can usher in the next several year period of Federal Reserve decision-making. At the very least, Taylor’s policy ideas will likely find their way into many House laws and into the platforms of many Republican candidates in the next election. Some of those ideas can be found on his blog, Economics One.

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