George Selgin joined the discussion over at Scott Sumner’s section on Econlog, criticizing some market monetarists and “fellow travelers” for their support of QE being somewhat superfluous.
As an armchair economist, a hobby like some people collect stamps, I suppose I fall in between Market Monetarist and a fellow traveler. So, perhaps my opinion doesn’t mean a whole lot. But, having said that, my position on QE is that with all other things being equal it was better than no QE.
It would have been much better for the FOMC to have abandoned inflation targeting, replacing it with NGDPLT with QE it back it up, saying ‘we won’t stop until NGDP hits X% growth per annum (or quarter or whatever it decides upon)’. Then, have the Fed presidents just STFU. It wouldn’t have to do much QE then because it’s a psychological tool rather than anything concrete; and people would, sooner or later get the idea that the FOMC is committed to that target and the demand for money/safe assets would start to fall.
The way QE was done, though it did reduce the demand for safe assets somewhat, it was just bad policy to fill the gaps left by the other bad policies in the monetary framework, as if to put a wig and lipstick on a pig. And even then, lack of clarity regarding the objective and counterproductive behavior by some of the more hawkish loose cannons on the FOMC, it amazes me that it helped at all.
Given the circumstances, I objected to tapering because I felt the ongoing QE should be used to hit their nominal target. I object to that target, 2% PCE, as well, but trying to hit that target is better for a more robust recovery and for credibility in future crises. But since lack of clarity appears to be the core competency on the FOMC, lack of hitting the target or even concern with it seems par for the course.
So here we sit, somewhere between rock bottom and mediocre – just waiting for another shock to come along and knock us off our rocker with the FOMC members so focused on the mass of base and how to get rid of it that they are nowhere near capable of reacting in appropriate ways. I’m very sorry to say that the next crisis will catch them as much off guard as the last.