“Aren’t there any Republicans left who can ask a useful question?
Maybe you have heard a line that goes something like this: The weak recovery is proof that the Federal Reserve’s program of asset purchases, otherwise known as quantitative easement, doesn’t work…If you were the one saying those words, you don’t understand the counterfactual.
That is the only conclusion I can draw from this common criticism of the Fed’s policies of zero interest rates and QE.
This flawed analytical paradigm has many manifestations, and not just in the investing world. They all rely on the same equation: If you do X, and there is no measurable change, 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? No change, last time I checked, is better than a free-fall.
If you are testing a new medication to reduce tumors, you want to see what happened to the group that didn’t get the test therapy. Maybe this control group experienced rapid tumor growth. Hence, a result where there is no increase in tumor mass in the group receiving the therapy would be considered a very positive outcome…
We run into the same issue with QE. In the absence of a functional Congress or an adequate post-recession stimulus program, the Fed is the only game in town. Neither you nor I truly know what the impact of QE has been. Without that control group, we simply don’t know. I have my suspicions, you have yours. But neither of us truly knows…
The counterfactual seems to get loss in most discussions of QE. Those engaged in the debate — either ignorantly or disingenuously — make claims such as “Look how few jobs have been created, and look how high unemployment is.”
But because there is no control group, the right question to ask is “How many fewer jobs would have been created? How much higher would unemployment be?”
RTFA to examine the question in more detail. Lots of folks don’t know much about modern economics. Times I feel the number who have no appreciation of logic in the world of material reality is even larger.
Barry Ritholtz is one of my favorite financial analysts. He has a habit counter to American pop culture of relying on historic fact. Sometimes, even [gasp] mathematics.
He describes himself as a Recovering Republican.