Of Flat Lines and Derp

Paul Krugman is here again with his favorite straw man argument. Krugman is smart and everyone else is stupid because QE has not resulted in hyperinflation. He doesn’t say “stupid,” though. He says “derp,” which means “I have statistics which seem to support my prejudices and you don’t.”

InflationApparently, hyperinflation is the only negative outcome recognized by the good doctor. He presents a lovely FRED chart proving his point. CPI has been flattish for six years, while money supply has grown. Can you think of any negative outcomes, other than inflation? Here is one hint, from FT, and another from Jeremiah. The quote below is from an ECB study.

An increase in the monetary base tends to … benefit primarily those on higher incomes, who hold a larger amount of overall savings in equities, and thus benefit from greater capital income.

Krugman’s chart shows only that his prescribed policy has avoided one particular negative outcome. It does not prove that the policy has actually worked, nor does it address the many other negative outcomes. Krugman’s acolytes are nonetheless hailing this one chart as the decisive defense of QE.

So, has the policy achieved its stated goal of increasing employment? Let’s look at another FRED chart. It looks a lot like the CPI chart, doesn’t it? Based only on these two variables, you would conclude that QE has had no effect at all.

EmploymentAt this point, we are obliged to point out that both these charts are bunk because the fivefold increase in money supply is obscuring smaller changes in the dependent variables. Accordingly, we drop it and display only employment and inflation. We already know what the history of QE has been over the period, and now we can see that inflation has indeed risen while employment has remained flat.


Finally, we observe that Krugman, a college professor and an economist of some note, is here coining a childish new term of abuse for his opponents – while engaging in exactly the sort of factless advocacy he presumes to criticize.


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