Wednesday, November 17, 2010

Confused About Fed Policy?

On November 15, 2010, Republican-oriented think tank e21 published an open letter to Federal Reserve Board Chairman Ben Bernanke, urging him to discontinue the Fed’s announced $600 billion large-scale asset purchase program (known as quantitative easing, QE II, or, more colloquially, printing money).  The 23 signatories included economists or economic historians Michael J. Boskin, Charles W. Calomaris, Niall Ferguson, Kevin A. Hassett, Douglas Holtz-Eakin, Ronald I. McKinnon, John B. Taylor, and Peter J. Wallison.  International criticism has come from Germany’s finance minister and heads of the central banks of China and Brazil.

Supporters of Bernanke’s purchase program include economists Paul Krugman, Alan Blinder, Tyler Cowen, Greg Mankiw, Scott Sumner, and Brad DeLong.  New York Fed president William Dudley and Bank of Israel head Stanley Fischer, Bernanke’s dissertation supervisor, have voiced their support.

Those on both sides include distinguished professors at prestigious universities, with equal IQ and knowledge of economic models and data sources.  Yet, two groups propose opposite policies.

Given the stakes, it would be nice to know who is right and who is wrong, or at least who is more right than wrong.  Maybe consult the Oracle at Delphi?  A duel at 20 paces?  Some form of majority vote among professors and business economists?  Draw straws?  An intrade contract?  A tag-team wrestling match?  These sound facetious, but there seems to be no objective economic standard by which to decide.

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