Over at Economist’s View, Mark Thoma comments on a piece by Joseph Stiglitz from Monday’s Financial Times that questions the value of using monetary rather than fiscal policy to deal with the economy. Stiglitz makes a number of very good points (you can almost hear the frustration in his writing), but he quickly goes past what I see as the money quote:
The Fed has bought more than a trillion dollars of mortgages and long-term bonds, the value of which will fall when the economy recovers – precisely the reason why no one in the private sector is interested. The government may pretend that it has not experienced a capital loss because, unlike banks, it does not have to use mark-to-market accounting. But no one should be fooled.
Substitute “Congress” or “The White House” for “The Fed” in the above graph and the real reasons monetary policy is now the only economic game in town become immediately apparent: it doesn’t appear to cost anything, doesn’t add to the budget deficit, and doesn’t require any votes by members of Congress.
That’s not to say that the Fed won’t be criticized for whatever type of quantitative easing it ultimately proposes. But the criticism will be far more muted and pose far fewer political dangers for the typical Democrat and Republican members of the House and Senate than would a vote to buy a trillion dollars of anything.
Stiglitz and Thoma argue that monetary policy might not be the most effective way to deal with the economy (in fact, it might not be in the top 10) it now is likely to be the only thing the federal government can do to make something happen.
That makes it remarkably analogous to Franco Harris’ infamous “immaculate reception” against the Oakland Raiders in 1972. It clearly wasn’t the way the most efficient way for the Pittsburgh Steelers to score, but it was the only thing that was available at the time.
For anyone too young to remember, here’s the clip of that play. It will all make sense if you think of the U.S. economy as the monetary policy equivalent of Terry Bradshaw.