“Central banks are forced into more attempts to push money into their real economies to stimulate aggregate demand. While conventional QE efforts create asset bubbles and over-valued currency, Qualitative Easing could be directed to future needs: revitalizing infrastructure, education and growing greener, more efficient renewable energy deployment.”
—Ben Bernanke and Milton Friedman Were Right: Helicopter Money or Qualitative Easing? June 8, 2016, Ethical Markets, USA.
Commentary: Ron Robins
The funds required to deal with climate change are immense! The idea to use Quantitative Easing (QE) as an ‘easy’ source of funds for that purpose (re ‘Qualitative’ Easing) is highly attractive. However, I believe that government incentives and actions such as carbon taxes, depletion costing of resources, regulations favouring environmental business activities, and massive investment in environmentally supportive infrastructure and other projects at these ultra low rates (while available), are better ways to go.
The facts are that QE of any nature is highly market distorting both in the short and the long-term and does not fit with my belief that ‘nature’ (i.e. the ‘invisible hand’ of Adam Smith) ultimately knows best with regard to optimal market and economic efficiency and effectiveness.
It’ll probably be many years before we know the real outcomes of today’s central bank behaviors. What many market observers are saying now is that at the beginning of the financial crises, such actions were necessary. However, now, some eight years after the crises, central bank policies are continuing or even enlarging the scope of such measures. And almost everyone is beginning to question their efficacy in improving economic conditions. My guess is that we’ll soon see these policies backfiring and possible market chaos ensue.
Though I have much sympathy with the concept of Qualitative Easing, fiddling with the ‘invisible hand’ of markets — or the way nature functions — is not the way forward. It is not enlightened economics.