For some reason I imagined Bob Murphy talking to his son when I watched this video:
My God, what a big mistake the Fed (and the profession) made in talking about monetary policy in terms of inflation! The following would be the sort of video I’d envision if I was trying to explain things:
Son: What’s all this QE2 talk about?
Bob the Austrian: The Fed is printing more money to boost national income.
Son: Why do they want to boost national income?
BTA: Because we’ve had a severe recession and the economy is still weak, more income would make Americans better off.
Son: But won’t that money just blow up more bubbles, isn’t a painful adjustment necessary after the housing bubble?
BTA: You need to study Hayek. The initial re-allocation of resources was necessary, but the secondary deflation that began in late 2008 caused an unnecessary fall in national income.
Son: Why then do so may conservatives oppose QE2?
BTA: They have two objections; they say it won’t have any effect, and they say it will cause lots of inflation.
Son: But aren’t those two effects logically inconsistent?
Son: Then why do left-wingers oppose the QE2?
BTA: They favor fiscal stimulus instead.
Son: But won’t fiscal stimulus balloon the budget deficit much more than monetary stimulus?
Son: But why are so many countries opposed to QE2?
BTA: The Chinese are worried that a weak dollar will cause the Chinese currency to also become weak, causing inflation.
Son: But if the Chinese think the US dollar is not a good currency, then why do they fix their own currency to the dollar? Did we request they fix their currency to ours?
BTA: Not exactly.
Son: Why is QE2 so unpopular with the public?
BTA: Because the Ben Ber-nank keeps saying they are trying to create more inflation.
Son: Are they trying to create more inflation?
BTA: No, they are trying to raise NGDP.
Son: If they rise NGDP is the hope that this will also raise inflation?
BTA: No, they hope that for any given increase in NGDP they get as little inflation and as much real growth as possible.
Son: Then why does the Ben Ber-nank use such an unpopular argument to sell such a good idea. I think most Americans would like to see their incomes rise.
BTA: The Ben Ber-nank was a professor of economics, not marketing. In addition, the Ben Ber-nank has not been exposed to the incredible beauties of NGDP targeting, as his job at the Fed leaves him little time to read the wise thoughts of Friedrich Hayek and Scott Sumner
Son: I can’t wait to read the thoughts of those two wise men.
PS. Regarding the Hayek link; scroll down far enough and you’ll find his picture.