A QE "Knave and Fool" Strikes Back

Two weeks ago, columnist Paul Krugman wrote a piece that took aim at a group who, in 2010, wrote an open letter to then Fed Chairman Ben Bernanke warning about the risks of inflation and currency debasement that could result from quantitative easing. In particular, Krugman referred to a recent Bloomberg article that attempted to follow up with the signatories of the letter, noting:

So Bloomberg had the bright idea, now that almost four years of low inflation have passed, of asking the signatories whether they would concede that they were wrong. Not a chance. Hey, they only said there was a “risk” of inflation, and the economy hasn’t done well, so it’s all good!

If those three sentences struck you as unnecessarily petulant, then you probably don't need to read the entire post from Krugman. You have the jist. Additionally, you may be wondering why the word "risk" is in quotes, given that the exact quote from the letter literally stated exactly that:

The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.

Needless to say, Paul Krugman's "writing" (see what I did there?) was in great need of a retort and - as luck would have it - one was offered by Cliff Asness of AQR Capital. Here is a short bit explaining their wording choice to Krugman:

We did not make a prediction, something we certainly know how to do and have collectively done many times. We warned of a risk. That's a very specific choice people like the open letter writers, and Paul, have to make all the time, and he knows this, but that doesn't deter him. Rather, Paul engages in the old debating trick of mentioning this argument himself and dismissing it. This technique worked for Eminem at the end of Eight Mile. But let's not be fooled by chicanery (silly Paul, you are no Rabbit). If I had wanted to make a prediction, I would have made one. I didn't, nor did my fellow signatories. Frankly, if there are any economists, aside from those never-uncertain-but-usually-wrong like Paul, who did not think such unprecedented Fed action represented at least a heightened risk, I think it was malpractice on their part.

The piece by Asness is well worth reading, both for its general snark towards Krugman but also for its detailed reasoning by one of the letter's original signatories. What do you monkeys think? Is Krugman right in his disdain?

 
Best Response

Huh, why does Asness suggest that this rather petty "score" is settled when QE actually brings economic prosperity? I think Krugman himself has stated several times that QE programs have not been decisive and their effects are limited and that decisive fiscal policy is another approach.

The point regarding asset inflation and its relation to economic inequality seems somewhat reasonably made. But again, the pettiness is astounding. It's like "hey yeah inflation showed up SOMEWHERE... AND it may have exacerbated economic inequality problems, so SUCK IT Krugman". Obviously Asness et al. were very concerned about this particular form of inflation and its impact on redistribution of wealth from the poverty-ridden to say, risk parity funds such as AQR that could not have any anticipated benefit from QE.

Anyways, this is rather disappointing, and while Krugman may be unnecessarily petulant, Asness in this article isn't much better. Pettiness in rap battles is amusing (btw Snoop is a WAY better rapper than Iggy), pettiness among economic theorists gets somewhat old. Both sides are capable of making honest arguments, but crossfire is apparently more entertaining. Only way to win here is to not play, but I can't claim reading these things is completely useless - it's always helpful to understand another's views (and biases).

 

Krugman is a bigger dick under his real name than I am under a pseudonym. I hate that a brilliant guy like that needs to be such a hack when he could teach a lot more people instead of catering to the fever swamp on one side or another.

 
Scott Irish:

Krugman is a bigger dick under his real name than I am under a pseudonym. I hate that a brilliant guy like that needs to be such a hack when he could teach a lot more people instead of catering to the fever swamp on one side or another.

This is what I hate about Krugman as well. He's clearly a smart guy, but every article of his can be summarized as "I'm right, and if you disagree you're dumb/racist/bigoted"

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