I haven’t written about the Federal Reserve’s QE2 program, a loosening of monetary policy for the purpose of stimulating the economy. The reason for my silence is straightforward — I don’t know whether QE2 is a good idea.
Initially, I was surprised by the vehemence with which Sarah Palin and other Republican politicians lashed out at the program. For it was not clear to me that these figures have a significantly better idea of the intricacies of monetary policy than I do.
Recently, however, conservative economists who do understand monetary policy have weighed in against QE2. In a post below, Scott points to an open letter to Ben Bernanke published in the Wall Street Journal and signed by prominent economists.
On the other hand, Ramesh Ponnuru has been reading economists who support QE2, and finds force in their arguments. Ponnuru cites David Beckwith, Scott Sumner, and Josh Hendrickson. He concludes:
[C]onservatives are talking about runaway inflation at a time when the consumer price index, which itself is generally considered to overestimate inflation, has been registering 1-2 percent inflation. The spread between inflation-indexed and unindexed bonds has also yielded a market prediction of inflation in that range. Opponents of QE2 say that the Fed should not be deliberately raising expectations of future inflation. Maybe they’re right. But let’s have some perspective. If the Fed delivers on the 2 percent average inflation it seems to want, we’ll still be below the average inflation rates of each of the last five decades.
And let’s remember as well that both Milton Friedman and Friedrich Hayek would probably have favored something like QE2.
Ponnuru has more on QE2 here.
SCOTT adds: John Taylor disputes the proposition that Milton Friedman would support QE2, and notes that Allan Meltzer “is certain he would not.”
PAUL adds: I’m told that Doug Irwin, a distinguished conservative economist at Dartmouth, believes Freidman would support QE2.
I probably shouldn’t have introduced (via Ponnuru’s quote) the “what would Milton do?” issue because I don’t think it’s a fruitful line of inquiry. The debate on the merits, by contrast, is beginning to intrigue me.