They were right about some of that. QE didn't have any noticeable impact on employment, and although general inflation didn't see much impact (if any), asset inflation went through the roof. Housing prices, stocks, etc. all point to insane asset inflation. One could also make the argument that the skyrocketing cost of college is due in part to the lower interest rates caused by QE (along with government guarantees on student loans and the inability to shed them in bankruptcy). The currency didn't depreciate relative to other currencies, but is that because it held its value or because other currencies were also QEing their way out of the recession?

> They were right about some of that. QE didn't have any noticeable impact on employment, and although general inflation didn't see much impact (if any), asset inflation went through the roof.

They were right about none of it. QE wasn't primary aimed at employment: that was what the stimulus was for. Except, in the US, the GOP deficit hawks insisted it be watered down.

> I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

* https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...

And when these folks were talking about "inflation" they were referring to CPI and the risk of Wiemar Germany, not assets. And I wish people would stop using "asset inflation", as it muddies the waters wit regards to what "inflation" means, and there's already another term:

* https://en.wikipedia.org/wiki/Economic_bubble

And the reason why assets are going up is because there are "excess" savings: a bunch of money sitting around doing nothing because there's not much spending. Japan has been in this situation since the mid- to late-1990s:

* https://en.wikipedia.org/wiki/Secular_stagnation

Perhaps someone should start spending so the money is being used for something besides earning interest on interest.

> The currency didn't depreciate relative to other currencies, but is that because it held its value or because other currencies were also QEing their way out of the recession?

So basically another prediction by the inflationists was a no-op.

I’d say quoting Krugman is doing exactly what the ancestor comment said

> and yet we will continue to believe the people making the incorrect predictions, especially when they reinforce our worldview.

I take Krugman’s advice with a grain of salt. In 2002 his suggestion was

“To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.”

I wouldn’t care but he was the type of thinker who caused people to say Ron Paul was a kook, who warned that the housing bubble was going to burst a couple years before it happened.

Asset inflation is most definitely occurring due to the increase in monetary supply. If I’m sitting in 100k in capital that I’ve saved by being frugal over the last 5 years, it is effectively becoming less and less valuable so I’m forced to spend it on some kind of asset not in hopes that the asset becomes more valuable but because my 100k is becoming less valuable.

To be fair there is much increase in home prices not due to inflation and more due to increased demand with the changes covid brought on.

And here is the legal crime that it brings about, I bought my current house with only 5% down for 350k and it would probably sell now for 390k, meaning my 20k of my frugally saved capital will have a 100% return in one year. You could argue if it lost 10% I would lose 100% of my invested capital but I bought right after I saw Trump turn on the printing presses so I was 99% sure this wouldn’t be like me buying a condo at the end of 2007.... shudder

Yeah, that ellipses is very telling:

> [...] And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

> Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

* https://www.nytimes.com/2002/08/02/opinion/dubya-s-double-di...

* https://archive.is/Vqw6x

People kept bringing up that 2002 statement over and over:

> So did I call for a bubble? The quote comes from this 2002 piece, in which I was pessimistic about the Fed’s ability to generate a sustained economy. If you read it in context, you’ll see that I wasn’t calling for a bubble — I was talking about the limits to the Fed’s powers, saying that the only way Greenspan could achieve recovery would be if he were able to create a new bubble, which is NOT the same thing as saying that this was a good idea. Of course, I know that this explanation won’t keep the haters from pulling up the same quote out of context, over and over.

* https://krugman.blogs.nytimes.com/2010/04/05/me-and-the-bubb...

If you've got a suggestion for person(s) who has been more right / less wrong that Krugman, I'm all ears. The Keynesians, as a general school of economists, seem to me to have best track record over the last ten years. Everyone else (Monetarists/Friedmans, Austrians, Chicago) seems more wrong than them.

It's tempting to write off economics as a field based on this sort of stuff, but I think that would be unfair to the economics profession.

I don't want to get too into the politics here, but I follow the financial news, and it's hard not to notice how the economic analysis can often be very different based on political affiliations. This letter was published in the Wall St. Journal, and many of the signatories work for the Hoover Institution, AEI, etc. I don't like saying it because it sounds so partisan, but these groups tend to be very concerned about the deficit / inflation / easy money policies during Democratic administrations.

During the same time period, the top economist at the Times was predicting low inflation and a slow recovery, and of course the federal reserve board itself had a different view which is why it took the actions it did. So did wall street / the markets, which did not have high inflation expectations priced in.

How economics is reported in the media is some combination of academic economics / politics / the media, and I'm not sure academic economics is really the biggest issue in that group. I think it's worth listening to what economists think, but it's important to look at their track record to be aware the media may be reporting a minority opinion in the field based on their political leanings.

If your top concern is fighting inflation, you actually have several other tools at your disposal than Federal Reserve policy. One example is raising income taxes. Others include supply-side pressure to lower the costs of major goods. Sadly, the former is politically risky and the latter takes a while to show up.

We did get tremendous asset inflation. QE is arguably one of the greatest drivers of wealth inequality. If the QE was done to fund social security payments (i.e. a broad check to every American instead of asset inflation mostly benefitting the wealthy), we would see real inflation materialize. That is basically what is happening now, and commodities have already been putting up 30%+ inflation numbers. It's only a matter of time before the contract for the beef in your Big Mac (which was negotiated years ago) is renegotiated in the current inflated commodity market.

> We did get tremendous asset inflation.

I wish people would stop using "inflation" in conjunction with "asset". It just causes confusion in what inflation actually means, and there's already a term for what you are referring to:

* https://en.wikipedia.org/wiki/Economic_bubble

> QE is arguably one of the greatest drivers of wealth inequality. If the QE was done to fund social security payments

That is the job of legislators, not central banks.

In the US the Federal Reserve isn't a fairy godmother or genie that can solve all of society's ills. They did what they could and were allowed to make sure the system works. Where was Congress?

> That is basically what is happening now, and commodities have already been putting up 30%+ inflation numbers.

The price of copper tripled between December 2008 and February 2011:

* https://fred.stlouisfed.org/series/PCOPPUSDM

And it led to… precisely nothing. A sluggish recovery which took too long because of a lacklustre stimulus because of the deficit hawks.

These rise in numbers were predicted months ago:

> So what’s going to happen in the months ahead? We’ll probably see a number of transitory price increases, not just because the economy is booming, but also because the lingering effects of the pandemic have produced some unusual disruptions — for example, a global shortage of shipping containers.

* https://www.nytimes.com/2021/03/22/opinion/us-inflation-stim...

* https://archive.is/Vxj5h

> there's already a term for what you are referring to

A bubble suggests the inherent overvaluation in a natural market cycle. Inflation is used intentionally to differentiate that the price is higher because money was artificially injected, so the normal rules for identifying market exuberance (assuming you had perfect information) are distorted.

> That is the job of legislators, not central banks.

The central banks buy whatever debt the legislators need to be financed, in the real world. During the pandemic, that meant buying insanely expensive (low interest) treasuries to finance stimulus checks, as well as direct economic injections.

> The price of copper tripled between December 2008 and February 2011:

That's one commodity. Indexes exist so that we may prevent this misleading thinking. Law of large numbers, etc.

As I posted a few weeks ago, random length lumber futures are up 200% since the pandemic began. Copper and soybean futures are both up 60%. Industrial steel is up 133%. Industrial silicon is up 70%. Sunflower oil +114%. Wheat +20%. Platinum +29%. Gold +20%. Aluminum +32%. Energy futures +30%. Natural gas +42%.

The real estate market is in a frenzy. SPX is up 25%, despite almost certainly taking a productivity hit as a whole.

Shortages due to shutdowns are a factor, but all the same, if there's a shortage of everything and an excess of cash, what do you get? (...Inflation).

A pretty empty statement, as noted QE did not really help employment and contributed to asset inflation. We haven't seen debasement yet, but we're 2/3 bad outcomes.

That’s just really false. European austerity after ‘08 presents a nice counterfactual showing benefits of QE.

Deficit spending is not the same as QE. In fact they're orthogonal. Keynesian economists believe you should deficit spend during recessions and pay down the deficit during booms, but the latter part doesn't ever end up happening because raising taxes is politically toxic so the deficit gets inflated away via QE. The U.S. could just as easily have operated at a big deficit during the recession and paid it back during 2012-2018 without QE.

> Deficit spending is not the same as QE.

While true, the European Central Bank (ECB) did raise rates at one point. Krugman (a Keynesian) sad this was a bad idea at the time, and that it would cause the recover to stall. And it did.

Because the ECB is generally run by Germans and they have an (anti-)inflation fetish, and so at the first hit of it they 'panic.

Moral of the story: listen to the Keynesian. I've been reading Krugman since ~2008, and he's been pretty right on most of the major monetary/fiscal policy points.

That’s a half truth, if you want to sell lots of treasuries at low yield, which was the case, you have to QE. There is a clear benefit to low yield debt in deficit spending, and so far no real harm (>10 years later!)

I would argue an asset bubble is quite a real harm, especially to future generations that are getting into the market at the current inflated valuation levels. But to each their own.

Asset prices as they impact real people are reflected in CPI, which shows low inflation. The fact that cash flow instruments are higher priced (and that’s largely because of low interest rather than QE) is kind of orthogonal to most people’s lives.