The Counter-Factual & the Fed’s QE



The weak recovery is proof that the Federal Reserve’s program of quantitative easement does not work.”


You do not understand the Counter-Factual.

That is the only conclusion I can draw from what the very common criticism of the Federal Reserve policies of ZIRP and QE (above), and its inherent analytical error.

The most common version goes something like this: If you do X, and there is no measurable change subsequently, X is therefore ineffective.

The problem with this “non-result result” is what would have occurred otherwise. Might “no change” be an improvement from what otherwise would have happened? Flat, last I checked is better than freefall.

If you are testing a new medication to reduce tumors, you want to see what happened to the group that did not get the tested therapy. Perhaps the control group saw tumors grew; maybe they were metastasizing throughout the body. Hence, a result where there is no increase in tumor mass or spreading would be considered a very positive outcome.

We run into the same issue with QE. In the absence of a functional congress or traditional post-recession Keynesian stimulus, the Fed is the only fgame in town. Neither you nor I truly know what the impact of QE has been.

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