The Non-Apology

You might want to take a look at Cliff Asness’s non-apology for warning about the risks in the Fed’s policy of quantitative easing:

When you go out of your way to warn of a risk and after a suitable period that risk has not come to bear, at least where everyone, including you, expected it, you should admit some error, and I do. But there is a still a big difference between pointing out a risk and making a forecast (hence the half admission!). A big reason this risk hasn’t come to fruition is, while not as dangerous so far as we thought, it appears QE was only mostly useless. To the extent even that is only mostly true, where effects did show up, it actually caused rather a lot of inflation, but inflation that went straight into the pockets of those who needed it least and whom Paul wouldn’t swerve his car to avoid. That is, it inflated financial assets, benefited the rich, and enhanced inequality.

It’s worth reading if only for Mr. Asness’s citation of “an honest Paul Krugman” as an example of a counter-factual.

If you haven’t noticed, I’m a Keynesian in the sense that I believe that Keynes’s prescription was right in theory. However, as fellow St. Louisan Yogi Berra wisely noted in theory there is no difference between practice and theory but in practice there is. The reality is that politicians will never allow a Keynesian response fast enough or efficient enough to accomplish the putative policy goals. Somehow money will always be diverted to allies, contributors, and pet projects regardless of the economic implications.

I also feel that I should point out one of the gravest defects of the policy of quantitative easing: it tended to crowd out other policy responses. Sixty-four months have passed since the beginning of the recovery and it’s still phlegmatic and inadequate to bring people back to work who’ve been out-of-work for now more than five years. That’s nothing to crow about.