And even that is doubtful.
A paper written by two staff members of the Federal Reserve Bank of Atlanta tried to quantify what all the Fed’s new money creation and related measures have accomplished. They conclude that unemployment today would be 0.13% higher without the radical measures and 1.0% higher if nothing at all had been done.
For some time, the Fed has been trying to demonstrate what its quantitative easing (new money creation in plain language) has accomplished. This has not been easy. In the first place, the results have been poor, far below what the Fed hoped for. In the second place, the Fed did not even have a theory to explain why it would work. Without a theory, it has been difficult to build a quantifiable model that would evaluate results.
After many false starts, a few papers have emerged arguing that the Fed’s actions helped. But even these papers don’t argue that they helped much. And the story isn’t yet over.
Economist John Hussman has likened the Fed’s current financial policies to a Roach Motel: easy to get into, impossible to get out of. It will be interesting to see how the Fed tries to get out.
The Fed paper boasts that consumer prices have not soared, as some critics feared they might because of the flood of new money. But that is far from a complete account. Even government indices, which understate consumer price inflation, are rising now, and a significant proportion of the new money created over the past six years has simply flowed into assets rather than consumer goods. This is blowing up new bubbles on top of the destructive dot-com and housing bubbles of the recent past.
The Atlanta Journal-Constitution wrote about the new Fed paper: “Without the Fed and its low interest rates, the jobless rate would have been higher these past few years–pretty much all economists agree on that.” But this is not accurate. Many economists believe that the Fed itself created the dot-com and housing bubbles and that the Fed’s most recent and most massive intervention has just made things worse, right now, but especially in the years ahead when the new bubbles burst.
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Hunter Lewis is co-founder of againstcronycapitalism.org, co-founder and former CEO of Cambridge Associates, a global investment firm, and author of nine books on economics and related subjects.