George Selgin has written a response to my blog post criticizing his expression of support in a TV interview for quantitative easing (QE) and for a Fed target for nominal gross domestic product (NGDP). In it, he makes a number of fair points that deserve a reply. I will take these one at a time, placing his statements in quotation marks and then replying to each of them in turn.
1. “To say (1) that ‘a case existed for’ X is not to claim that X was in fact justified; (2) the case existed in 2008-2009, mainly before QE1 actually kicked in.”
The first clause involves impeccable logic and I happily concede the point. The second clause is a contention about a factual situation which is open to interpretation.
Let me explain. Total spending or NGDP began to shrink in Q2 2008 and continued to do so for a year through Q1 2009, falling during the period by roughly $500 billion from $14.415 to $13.885 trillion or by 3.67 percent. The Fed announced in March 2009 that the first round of QE would begin in June. By the end of Q1 2010, NGDP had recovered to its pre-crisis peak. So, in light of these data, is George saying that QE1 had no effect in bringing about this expansion in aggregate demand and that the expansion would have taken place anyway? And, if so, would he have advised the Fed against undertaking QE, despite the fact that the data available at the time of its announcement in March 2009 indicated that NGDP was continuing to shrink? Or would he have advised the Fed to abort the program in June 2009 after one quarter of growing NGDP that still left it far below its pre-crisis peak? However he might answer these questions, he is clearly saying that implementing QE1 earlier rather than later would have been a good idea.
As a footnote, in a blog posted on September 19, 2012, I wrote: “[Krugman] could care less about George’s support for fractional-reserve banking and would not bat an eye even if he knew that George supported QE1 and (maybe) QE2. . . .” Although George wrote two responses to my post (here and here), he never contested this characterization of his position.
2. “I’ve never actually endorsed any of the QEs in print; I have suggested that an ideal monetary system would stabilize NGDP or aggregate demand or something like it . . . . I’m also on record saying that the best way to get this outcome is with a free banking system–in my first book, and elsewhere.”
All of this is true and I never suggested otherwise in my post. But it is completely irrelevant to the point that I was making. George was being interviewed on a TV news show. It can be reasonably assumed that the vast majority of the audience were non-economists who were not conversant with George’s work and did not know exactly when QE1 was implemented. When George said, “Back in 2008 a case existed for quantitative easing because there really was a shrinkage of demand and the Fed needed to do something about it,” I am certain that his audience construed it as an expression of support for QE1. I would be astounded if a smart man like George could believe anything else now or when he originally made the statement.
3. “It is, by the way, silly to suggest that, if someone says, ‘The Fed screwed up because it should have done Z, but instead did Y’ that person is implicitly defending the institution of central banking or arguing that one ought to have a central bank so as to be able to have it do Z. That’s just not a logical implication of the argument.”
Right—which is why I never suggested such a thing. I focused narrowly on the topics that were covered in the interview. I suggest that if George is concerned about a lay audience misconstruing his statements about QE and an NGDP target as an endorsement of central banking—as he should be—he may want to articulate a disclaimer like the one above in the future.
5. “What’s more, when certain Austrian’s imagine that they are avoiding the implied endorsement by saying that, instead of doing either Z or Y, the Fed should have done nothing, or should have left M unchanged,” they deceive themselves. For “doing nothing” to M can also be understood as a policy action, and hence as an implicit endorsement of some Fed policy, and hence as implicitly endorsing the Fed itself.”
Right again, George . I have explicitly stated in interviews that the optimal response to the financial crisis was for the Fed basically to freeze the monetary base, allowing it to change only to the extent necessary to permit insured depositors to be paid off as their banks fail. I have also written two pieces (here and here) in the past year arguing that as long as we are stuck with the Fed it is far better to place it directly under the control of Congress rather than the un-elected and unaccountable Fed bureaucrats who now run it as a secretive and quasi-independent branch of government.
6. “As for my true opinion of the actual QEs, I am against them, because I am against any central bank money supply manipulations that are discretionary rather than rule-based. (My particular preference is for a monetary base freeze and free banking, with no barriers to the use of alternative base monies.)”
Why didn’t you say so in the interview, instead of advocating an NGDP target for the Fed? BTW, I am completely comfortable with your preferred program as a step in the transition process toward abolishing the Fed, as long as it is accompanied by the further condition that federal deposit insurance be phased out within a year for existing deposit accounts, and denied to all new deposit accounts beginning immediately.
7. “Finally, I wonder how long it will be before readers will see the Selgin bashing for what it is: yet another sign of that tendency, so common in religious contexts (but not in scholarly ones) to treat with disproportionate enmity and vehemence, not those ideas which pose the greatest threat of diverting people from the path of genuine understanding, but those appearing to be especially close, and therefore especially threatening, to one’s own.”
This statement is utterly astounding, given the ill treatment that its author routinely metes out to those who express the slightest disagreement with his views. I did not bash George nor did my post display enmity in any degree toward him. I simply disagreed with some (not all) of the views he expressed. Nor was my tone “vehement.” Now I can understand why my final paragraph may have nettled George. There I likened his position on hoarding to Bernanke’s and questioned whether he had learned the essential lesson of Say’s law. But these points were made without any enmity toward him and were not stated with particular vehemence. Instead of replying to these points, however, George chose to smear me as a religious fanatic. Unfortunately this seems to be a recurring pattern in George’s responses to those who disagree with him. The slightest criticism of his position elicits from George a thunder of personal denunciation impugning the critic’s integrity, scholarship, and motives. When last I ventured to challenge his views, George accused me of: being in an “integrity free-fall”; so “anxious to affirm my fidelity to a club” that I am unconcerned with truth; “a mountebank pretending to be [a] scholar” [plural suppressed]; making “idiotic statements”; and wallowing in “intellectual dishonesty.”
Unlike George, I do not think that “religious” is a synonym for “intolerant,” but surely such diatribes that George regularly unleashes against his critics marks him as beyond merely prickly or thin-skinned. I do not care to speculate on the motives or aims that underlie George’s egregiously ill-mannered and uncivil treatment of his critics, but such behavior lies beyond the pale of scholarly discourse.
