This past Friday was the third anniversary of the infamous E21 letter. We can’t let an important anniversary slide by without comment, can we?
“Wait,” you say, “What was the E21 letter?”
WC is glad you asked.
That was the letter to Fed Chairman Ben Bernanke, signed by 23 would-be economic prophets and soothsayers, all of, how to say this … a conservative … view. They warned that quantitative easing would debase American currency and cause sharp inflation. The letter got a lot of publicity at the time.
Quantitative easing is the ongoing Federal Reserve Board policy of the Fed’s purchase of U.S. and private bonds. Currently, the Fed is buying about $60-65 billion in bonds each month. The effect has been to slightly stimulate the U.S. economy, by expanding the money supply.
We’re three years in to quantitative easing. None of the horrors predicted by the E21 letter have occurred. Inflation has not soared; it’s below the Fed targeted rate of 2%. The U.S. currency hasn’t been “debased” – U.S. bonds are still overwhelmingly the preferred investment vehicle in international circles.
“Debased” is an interesting choice of words, too. “Debased” calls back to the fight over the gold standard, something that conservatives clung to for decades. The U.S. gold standard protracted and aggravated the Great Depression because … wait for it … it made it impossible for the Federal banking system to expand the money supply to stimulate the economy, fund insolvent banks and fund government deficits that could “prime the pump” for an expansion. But WC digresses.
So you’d think that at least some of those 23 would-be economic prophets would step forward and admit they got it wrong, or explain their error.
You silly duck.
Conservatives don’t admit error. Conservatives don’t make bad predictions. It’s the world that gets it wrong.
WC joins Real Economists like Barry Ritholz and Paul Krugman in wondering how the E21 signatories can eat all that crow, and leave that mess of black feathers and not offer some explanation… They’ve never been shy about pointing out when a Keynsian makes a mistake.