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The Spectacle Blog
In the latest issue of National Review, Ramesh Ponnuru lays out the conservative case for more expansive counter-recessionary monetary policy, as well as an argument that QE2 has been successful. Ponnuru warns that conservative fears about inflation could prove dangerous, comparing such concerns to “crying “fire” in, if not Noah’s flood, at least a torrential rain.”
Ponnuru’s article is essentially a distillation of arguments that have been advanced by right-wing economist bloggers: Scott Sumner, David Beckworth, and Josh Hendrickson. It’s not far in its logic from the backgrounder I wrote in November.
Ponnuru’s argument that QE2 “worked,” however, seems about as thin as similar claims about TARP or the stimulus. Here it is in its entirety:
As the market became convinced that the Fed planned to act, both expectations of inflation and expectations of real growth increased: the former indicated in the spreads between inflation-indexed bonds and non-indexed bonds, the latter in real interest rates. Nominal income thus moved closer to trend, if not as much as it would have with a bolder Fed initiative. (An explicit announcement that the Fed is willing to do what it takes to restore the trend might itself change expectations enough to make great exertions by it unnecessary.) Stocks picked up too. QE2, though flawed, worked. It began to work even before being formally implemented.
We’ll see if that translates to real growth, which is the whole point. And we’ll see what happens to stocks once QE2 winds down.
View all comments (11) | Leave a comment
More Blog Posts by Joseph Lawler
http://spectator.org/blog/2011/04/07/a-conservative-case-for-qe2
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Jeff| 4.7.11 @ 4:12PM
since when did Ramesh have any economics qualifications ? did he major in it in school, has he written anything groudbreaking ? Nope, he basically regurgitates what others hve written ...
He is famous for being a minority grad of princeton who wrote a pro-life book ... all very worthy accomplishments but nothing to do with economics ... he's been nothing but a opinion writer his entire life/career and brings no real world experience to the table ...
Please resist even shooting down his recycled posts because almost nothing he writes is his own scholarship but simply him pointing at other "experts" ... you can't prove him wrong because he never puts his own ideas out there ...
he's just another intellectual mercenary who would write for whoever would give him a forum ... it happens to be NRO today ...
JP| 4.7.11 @ 4:25PM
Quantative Easing can take different forms. The most used by Bernecke is the purchasing of Treasury Notes. The Federal Reserve's portfolio is now full of them. And if one considers that the federal government is borrowing at the rate of $3-4 billion dollars a day, and that private firms like PIMCO are divesting their holdings of long term federal bonds, we can say that the Fed is facillitating the greatest generational theft in our history. Someone will have to pay the piper eventually; it will either be current taxpayers (which would see thier individual tax rates sky-rocket to 88%), or it will be future taxpayers.
Everytime some federal agency pays a vendor or cuts a paycheck, 40-45% of that money is borrowed. This is how Bernecke is actually stimulating the economy. All of that cash (which is derived from future incomes) then gets injected into our economy. It doesn't take a PhD to track the recovering of Wall St, as it mirrors defecit spending and QE I and II. Remove the Fed's actions and we're back to Jan 2009.
And that is why the President seems to confidantly disinterested in what goes on with the budget battles. If Congress reduces its spending, unemployment will go up and he can blame the GOP. The federal government is now the biggest player in town. And Ben Bernecke gave a big assist. Somehow I don't think this was the original goals set for the Federal Reserve.
JP| 4.7.11 @ 4:36PM
@Jeff
Ramesh considers himself an intellectual; his peers are fellow "intellectuals". He's a sucker for thier abstractions. Ramesh loves concepts like money velocity, bond spreads, and various econometric theories.
People like him (whether conservative or Progressive) see themselves as being in the same "knowledge class". The Federal Reserve can spray hundreds of billions of liquidity into our financial system and they will say with a straight face that there is no dollar devaluation. And if pesky things like energy, food, and clothing prove bothersome to thier theories, they simply elminate them, as they did in the 1990s CPI calculations.
These "elites" are now everywhere. You can find them in all phases of government academia, churches, the military, as well as both political parties. Ramesh is one of them.
Sea Cucumber| 4.7.11 @ 4:42PM
Ponnuru's argument rests on two fallacies. First, he assumes that the only problem with credit expansion is rising prices, ignoring the issue of malinvestment entirely. Second, he fails to realize that if the economy is having trouble with deflation, the source of the problem lies with prices being forced above market clearing levels by government intervention. This, and not a falling money supply, was the major source of unemployment during the Great Depression. Ponnuru would know this if he'd read Rothbard's book on the subject.
Russell | 4.7.11 @ 8:53PM
While the QE2 is still afloat, Ponnuru seems to be bucking for promotion from steerage to deck chair steward of the Titanic. Best lighten ship by showing him the rail.
Handy| 4.8.11 @ 12:54AM
Ponnuru's article was utter rot. I wanted to refute it on the NRO website, but have never been able to properly register there. Anyone else have the same problem?
Incidentally, the biggest mistake is in his new equation: MmV=PY wherein m is the change in the composition of the monetary base. In essence, he has bought into a whole new definition of GDP due to the multiplier effect.
He, and the silly economics professors he cites are basically saying M*V*V=PY. Novel approach. As dumb as it is new.
martin j smith| 4.8.11 @ 7:37AM
Two points only: If QE II means a cruise for the Socialists for Europe --on a permanent basis I am all for it provide THEY PAY THE ENTIRE TAB.
Second as for " Blaming" Repubs, Tea Partiers etc
I think our side FOR A CHANGE needs to show some guts and stand up to such "blame games" and throw it back at the Socialists--right in their faces. Fear is a first cousin of cowardice. And, I am not talking about jumping off a cliff when there is no support below. In politics WHEN YOU ARE RIGHT THAT IS THE WAY TO GO.
JimH| 4.8.11 @ 9:31AM
While you might find some monitarist support, I doubt if any is to be found among the Austrians.
2Anglico| 4.8.11 @ 10:01AM
What is the Fed "buying" Treasury Notes with, the IOU's deposited in the Social Security Trust Fund?
Jack| 4.8.11 @ 2:24PM
I can tell you that it has been a great success for people on fixed incomes as we watch our groceries, utilities and everything else increase with no end in sight. I sleep better knowing my money is worth less every day. Another scheme to make the markets look better.
martin j smith| 4.8.11 @ 3:32PM
ONE MORE THING; THERE IS NO CASE FOR QE II. NONE AT ALL.