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mainly macro: Why Quantitative Easing should always be with us
Source: mainlymacro.blogspot.com
Article summary:
1. Quantitative Easing (QE) is often misunderstood and unfairly judged, but it will always be a part of the policy toolkit as long as central banks remain independent.
2. QE is an important policy instrument that allows for money-financed fiscal expansions when interest rates are low and bond markets won't buy government debt.
3. While QE is not a reliable stimulus tool in itself, it knocks down claims that fiscal expansion might cause bond market panic and provides an option for governments to finance deficits when necessary.
Article analysis:
The article "Why Quantitative Easing should always be with us" by Simon Wren-Lewis argues that Quantitative Easing (QE) is an important policy instrument that should always be available to governments. The author explains how QE works and its role in financing fiscal policy during the Covid pandemic. He also addresses some of the criticisms of QE, such as its association with increasing wealth inequality and its potential contribution to inflation.
Overall, the article provides a clear and informative explanation of QE and its role in fiscal policy. However, there are some potential biases and limitations in the author's arguments.
One-sided reporting: The article presents a largely positive view of QE without exploring potential drawbacks or counterarguments. For example, while the author acknowledges concerns about wealth inequality associated with low interest rates, he downplays the impact of QE on asset prices compared to other factors. Similarly, while he dismisses claims that QE contributed to inflation without providing evidence or addressing possible counterarguments.
Unsupported claims: The author makes several claims without providing evidence or sources to support them. For example, he states that "most academic economists" now recognize that fiscal consolidation in 2010 was a mistake but does not provide any references or data to back up this claim.
Missing points of consideration: While the article focuses on the benefits of QE for financing fiscal policy during crises, it does not address potential risks or drawbacks associated with this approach. For example, some economists have raised concerns about the long-term effects of large-scale money creation on inflation expectations and financial stability.
Promotional content: While the article is not explicitly promotional, it could be seen as advocating for continued use of QE as a policy tool. This may reflect the author's personal views or biases towards monetary policy over fiscal policy.
Partiality: The article presents a somewhat one-sided view of central bank independence and inflation targeting as desirable goals for macroeconomic stability. While these policies have been widely adopted in recent decades, some economists have criticized them for limiting the role of democratic institutions in economic decision-making and prioritizing inflation control over other goals such as employment or income distribution.
In conclusion, while the article provides a useful overview of QE and its role in fiscal policy, it could benefit from more balanced reporting and consideration of potential risks and drawbacks associated with this approach.
Topics for further research:
Risks of large-scale money creation on inflation expectations and financial stability
Criticisms of central bank independence and inflation targeting
Impact of QE on asset prices and wealth inequality
Counterarguments to claims that QE did not contribute to inflation
Long-term effects of QE on the economy
Alternatives to QE for financing fiscal policy during crises