First of all: according to the doxology which the Fed subscribes to, QE would only cause inflation if and when unemployment pushes on the natural rate of employment. So in other words, there would be no inflation until the economy was back on track. If that sounds strange, it's not really -- it's in fact quite logical, but it's just complex.
Which is part of the problem of videos such as the one above: over-simplification. In order for the masses to understand -- without needing to obtain an MA in Econ -- the concepts of economics often become oversimplified and painted in black and white. In truth, the study of economics has a lot of different orthodox perspectives, and every economy has limitless moving parts. Economics is nothing but gray areas. For every criticism the above video made, there is a logical and interesting counter-criticism (some more, some less compelling).
For instance: The video criticizes Bernanke -- who is world-renown for his research on the Great Depression -- for having no legitimate experience. It even dares to claim that his status as a non-elected official somehow makes him under-qualified (I guess that makes Rod Blogo somehow qualified to be governor?). Yet, only moments later, the video decries the head of the New York Fed for having actual business experience.
Moreover, Goldman Sachs is not a proprietary firm -- they manage funds for normal Americans. So, by purchasing T-notes/bills from Goldman Sachs, the Fed is essentially buying them from the portfolios of average Americans -- not necessarily stuffing the pockets of bankers' with pig-shaped heads.
Nonetheless, the video is funny and brings about some relevant criticisms -- such as: Does the CPI work properly? Shouldn't the government act more adversarial towards investment institutions? Is deflation something to fear?
My answers: Maybe not, yes, and definitely yes.
I don't think you can undersell the dangers of deflation. Deflation creates a wealth-draining spiral -- much like hyper-inflation. The place we need to be is: just a little bit of inflation.
Concerning QE, though, and the forecasting abilities of economists, the video is patently incorrect to claim economists cannot and have never predicted economic crises. Consider Hyman Mynsky, who perfectly described the 2008 recession 20 years before it happened. Even within the government, there were those who foresaw these crises. The funny thing is that QE is meant to be the Fed's concession to these prophets. They are now acting in accordance with the Keynesian policy advocates whose models allowed for this present crisis. Yet we -- the public -- chastise them for doing so.
I think even the Fed would agree that QE is suboptimal, that they would prefer to use something such a fiscal policy -- but the animal-spirits public has completely foresworn a non-balanced budget. Which is perfect timing, really, because an unbalanced budget is in every way like steroids -- great for overcoming an injury, bad for long term health. Yet, in 2003-2008, we used deficit spending like Jose Conseco. Now, when we need it most, people are screaming, "Get off the juice!"
http://www.nytimes.com/2010/11/17/opinion/17buffett.html
ReplyDeleteFirst of all: according to the doxology which the Fed subscribes to, QE would only cause inflation if and when unemployment pushes on the natural rate of employment. So in other words, there would be no inflation until the economy was back on track. If that sounds strange, it's not really -- it's in fact quite logical, but it's just complex.
ReplyDeleteWhich is part of the problem of videos such as the one above: over-simplification. In order for the masses to understand -- without needing to obtain an MA in Econ -- the concepts of economics often become oversimplified and painted in black and white. In truth, the study of economics has a lot of different orthodox perspectives, and every economy has limitless moving parts. Economics is nothing but gray areas. For every criticism the above video made, there is a logical and interesting counter-criticism (some more, some less compelling).
For instance: The video criticizes Bernanke -- who is world-renown for his research on the Great Depression -- for having no legitimate experience. It even dares to claim that his status as a non-elected official somehow makes him under-qualified (I guess that makes Rod Blogo somehow qualified to be governor?). Yet, only moments later, the video decries the head of the New York Fed for having actual business experience.
Moreover, Goldman Sachs is not a proprietary firm -- they manage funds for normal Americans. So, by purchasing T-notes/bills from Goldman Sachs, the Fed is essentially buying them from the portfolios of average Americans -- not necessarily stuffing the pockets of bankers' with pig-shaped heads.
Nonetheless, the video is funny and brings about some relevant criticisms -- such as: Does the CPI work properly? Shouldn't the government act more adversarial towards investment institutions? Is deflation something to fear?
My answers: Maybe not, yes, and definitely yes.
I don't think you can undersell the dangers of deflation. Deflation creates a wealth-draining spiral -- much like hyper-inflation. The place we need to be is: just a little bit of inflation.
Concerning QE, though, and the forecasting abilities of economists, the video is patently incorrect to claim economists cannot and have never predicted economic crises. Consider Hyman Mynsky, who perfectly described the 2008 recession 20 years before it happened. Even within the government, there were those who foresaw these crises. The funny thing is that QE is meant to be the Fed's concession to these prophets. They are now acting in accordance with the Keynesian policy advocates whose models allowed for this present crisis. Yet we -- the public -- chastise them for doing so.
I think even the Fed would agree that QE is suboptimal, that they would prefer to use something such a fiscal policy -- but the animal-spirits public has completely foresworn a non-balanced budget. Which is perfect timing, really, because an unbalanced budget is in every way like steroids -- great for overcoming an injury, bad for long term health. Yet, in 2003-2008, we used deficit spending like Jose Conseco. Now, when we need it most, people are screaming, "Get off the juice!"
That's politics for you.