This line by Matt McOsker, in a comment on one of my recent posts, now reigns as the best line of the year in my personal pantheon.
QE’s only direct effect is on the financial sector. It only affects the real sector — where people work to produce, buy, and sell real goods, and produce surplus in the process — through second- and third- (+) order carry-on effects of quite uncertain and contestable mechanism and efficacy.
I’m with Steve Randy Waldman: if you want to kill James Bond, just shoot him with a gun, already!
Cross-posted at Angry Bear.
Comments
7 responses to “Quantitative Easing: Like “trying to kill James Bond with a shark””
[…] Cross-posted at Asymptosis. […]
[…] Cross-posted at Asymptosis. […]
From the angrybearblog post:
Mark A. Sadowski
May 22, 2013 12:42 pm
Steve Roth:
“Or to put it another way: when you increase M in MV = PY, the most likely result — the result you have to assume by default absent some convincing story about real-economy incentives, causes, and effects — is a purely arithmetic decline in V (cf. Dudley’s “byproductâ€), with zero effect on P or Y.â€
The M in the equation of exchange is “money supplyâ€. QE increases the monetary base. Dudley here says that QE “supports†aggregate demand (AD), which by definition is the product of P and Y. And elsewhere in the speech he quite clearly states:
“Credibility requires taking action in the present as well as providing guidance for the future, and we are fortunate to have learned that asset purchases can indeed be an effective tool to support growth, employment and inflation expectations at the zero bound.â€
Steve Roth:
“This is doubly true if by M you mean the Monetary Base (as monetarists do, inconsistently but often) — the only measure of money that includes reserve balances. Increasing the quantity of reserve balances (hence the monetary base) does not magically increase either P or Y.â€
The monetary base is also referred to as “base moneyâ€, “money baseâ€, “high-powered moneyâ€, “reserve moneyâ€, or “narrow moneyâ€. To my knowledge, no one with academic training has ever claimed that the monetary base is the same as money supply.
Emphasize the last part:
“To my knowledge, no one with academic training has ever claimed that the monetary base is the same as money supply.”
I am pretty sure that is wrong. I am pretty sure Scott Sumner says money = money supply = medium of account (MOA) = monetary base = currency plus central bank reserves.
I think Krugman thinks the same way too.
It seems to me there are more economists who think like that.
@Fed Up
To my knowledge, no one with academic training has ever given a consistent, coherent definition of M.
@Asymptosis
The question is up here.
http://www.themoneyillusion.com/?p=21263#comment-249717
MV = PY
You say M equal monetary base = currency plus central bank reserves, right?
@Fed Up
I rephrased the question here.
http://www.themoneyillusion.com/?p=21263&cpage=1#comment-249721
“Fed Up
24. May 2013 at 13:58
I think I better ask my question more completely.
MV = PY
M = money = money supply = medium of account (MOA) = monetary base = currency plus central bank reserves, right?”
http://www.themoneyillusion.com/?p=21263&cpage=1#comment-249834
“Fed up. Yes.”
***********
Duly noted and recorded here.
http://www.themoneyillusion.com/?p=21263&cpage=1#comment-249856