Two on QE2

(cc photo by LateNightTaskForce)

Let me recommend recent posts from Tyler Cowen and from Karl Smith responding to critics of the new round of quantitative easing.

On a less technical level, I note that a lot of the discussion aimed at popular audiences (e.g., Sarah Palin), professes to be shocked by the idea of just “printing money.” This is really a kind of confused criticism. Money is a useful thing. And the way or system has worked for decades is that money is produced by the government. So the government is always printing money. You just may not have been paying attention. And if the quantity of money were going down rather than up, that would also be a policy decision. This is how it worked when Ronald Reagan was President, it’s how it worked when Bill Clinton was President, and it’s how it works today. There’s nothing weird about it other than the general fact that the practical operation of a modern capitalist economy is at odds with a certain number of fairy tales about free markets.

Consequently, the Fed can’t really “do nothing.” It’s constantly, necessarily, adopting a policy stance.