David Frum

09.13.12

3 Cheers for Bernanke and QE3!

Today's decision by the Federal Reserve to begin a third round of quantitative easing is unlikely to thrill fans of hard money (and your gold standard crowd), but advocates of modern economic policy seem pretty happy.

Josh Barro quotes Michael Scott.

While overly tight monetary policy has hit the unemployed the hardest, it has been bad for almost everybody, including rich people. It’s true that disinflation has been good for certain securities, particularly low-risk bonds. But wealthy bondholders also tend to be wealthy stockholders, and Fed policies that hold economic growth down are bad for equities. Most advocates of hard money are simply making a mistake, not putting their interests ahead of the common good.

The great thing about good policy is that it is a positive-sum game. A Fed that credibly promises to ease until unemployment falls will both put people back to work and grow the economy faster, driving up stock prices. That's a win for capital, a win for labor and, if he gets credit for an accelerated recovery, a win for Ben Bernanke. As Michael Scott might say, it's a win-win-win.

Lars Christensen thinks "Ben just did it."

So we nearly got what I asked for: 1) A clear target - not an NGDP level target, but a soft Mankiw rule/Evans rule based on the Fed's dual mandate. 2) A clear instrument to increase the money base: Mortgage backed securities. 3) A promise to do more if the target is not hit.

Now the markets should do a lot of the additional lifting.

I think it would be ungrateful to ask for more - yes, yes it is not NGDP level targeting and a lot of things can go wrong, but today I think we can take a little victory lap. This is excellent news for the US economy and for the global economy. Then we can hope that we in the coming month will get an even more clear defined "Bernanke rule" so we finally can back to a rule based rather than a discretionary monetary policy.

And Joe Weisenthal seems positively ecstatic.

The Fed just changed the game. Whereas in the past, the Fed always set a defined amount of Fed purchases, this time they're saying that the easing will continue until morale improves. This is a major change. They've now said to businesses and banks and everyone else that they will not let up and tighten conditions until things are much better.