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IPFS News Link • Federal Reserve

Orwell & QE2:" The 1st Step to Solving a Problem is Stating it Correctly

Evolutionary psychology asserts that humans have two basic drives - accumulating resources and minimizing effort. Throughout human history, anyone who could gather real resources without expending much time or energy had a huge survival advantage. "Quantitative easing," has, then, a hugely positive emotional valence, as it embraces the two things humans prize most - quantity and ease. Of course, in reality, "quantitative easing" offers no such thing. It creates no real resources whatsoever, and whatever "ease" it might provide will be more than counterbalanced by painful side- and aftereffects. An alternative phrase that policy critics sometimes advance - "money printing" - is, ironically, almost as attractive. The reason is that "money" has multiple meanings, and in the popular mind is conflated with possessions that can be purchased with currency. In other words, at a fundamental level, "money printing" sounds like a pretty good idea - the creation of a real resource with little effort. Sign me up! So let's be clear. The most accurate description for the action described by "quantitative easing" is actually "fiat creation." Here, the type of money being created is specified - a fiat currency, untethered to any real resource, with no more intrinsic worth than the paper (or electrons) that constitute it. And "creation" reveals the voluntary bringing-into-being of this intrinsically valueless commodity. Using these words makes it clear that there is no imaginary constraint at which the fiat strains in search of "easing," instead, human beings make choices and perform actions to create it. The fact that the average American has no idea what fiat is, is no excuse for those who do understand it failing to employ the phrase often in writing and speaking. If it is used enough, even Americans can learn a new word.