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City University of
New York’s Paul Krugman
recently mocked folks who signed a 2010
letter warning about negative outcomes from the Federal
Reserve’s quantitative easing (QE). Specifically, the signatories
had warned of rampant inflation, “currency debasement,” massive
distortion in financial markets, and continuing high levels of
unemployment. The most-catastrophic versions of these things
haven’t happened and when
asked by Bloomberg a couple of weeks ago to explain the
failure of the predictions, many of the folks involved hemmed and
hawed or simply said that they hadn’t set a deadline for when QE
would blow up the economy.

“Note the absence of a date,” explained Niall Ferguson, one of
the signers. “There is in fact still a risk of currency debasement
and inflation.” Others said that in fact everything they warned
about was happening. Inflation isn’t showing up in the
official measure, they said; the stock market is bubbling; the
economy is barely moving; and more. 

Krugman characterized the signers as the sort of “fools
and knaves” who “argue in bad faith” and can’t admit when they’re
wrong. He’s got at least part of a point. Certainly, inflation
hasn’t spiked in the way that basic monetarist policy would have
predicted.

But Krugman’s cock-a-doodle-doing is similarly overplayed. As
AQR Capital’s Cliff Asness, who signed the letter, writes in
an excellent piece at RealClearMarkets about the matter, QE has
been revealed to be a dud in virtually just about every way
possible—except for making the 1 percent even better off.

This is not
the opening statement of a guy arguing in bad faith:

Those looking for a blanket admission of error will get part of
what they want; a small part. Those hoping I hold the line denying
any misstep will also be disappointed. I believe truth, as is often
the case in similar situations, lies in the middle of these and I
prefer truth, as I see it, to any reader walking away sated.

He stresses that in signing the letter, nobody made a prediction
but called attention to a heightened risk. And when it comes to
inflation, the idea of the Fed pumping huge amounts of money into
the banking system via an unprecedented move clearly “represented
at least a heightened risk” for inflation. “By writing the letter
we clearly thought this risk was higher than others did, and wished
to stress it, and it has not (as most commonly measured) as of now
come to bear. Our, and my, (half) bad.”

But if CPI inflation didn’t come to pass, notes Asness, neither
did much of anything else.

To the extent inflation worriers like us were wrong, so were
those predicting great economic benefits. The Fed clearly wanted
this money lent by banks and spent by companies on investment and
by people on consumption. They didn’t get that, and we didn’t get
the inflation we feared. This is not to say that low interest
rates, real and nominal, and high prices for risky assets (and the
supposed “wealth effect” that comes with them) were not Fed goals.
They clearly were. But it seems these intermediate goals have not
had their desired effect on the real economy.

The main reason that inflation hasn’t spiked,
Asness argues (and in this, he’s in wide company) is because the
Fed is paying banks “low but positive interest rates” on reserves,
thus keeping the dough from circulating in the absence of strong
demand. That means the Fed’s magic money is neither “creating
inflation as we feared, or helping the economy as they [QE
proponents] hoped.”

Which isn’t to say there isn’t inflation going on.

You’d be hard pressed to find many economists or Wall Street
professionals who don’t see current extremely
high asset prices, and low forward looking returns to
investors, as at least a partial consequence of the cocktail of QE,
loose monetary policy, and financial repression….

While not as dangerous so far as we thought, it appears QE was
only mostly useless. To the extent even that is only mostly true,
where effects did show up, it actually caused rather a lot of
inflation, but inflation that went straight into the pockets of
those who needed it least and whom [Krugman] wouldn’t swerve his
car to avoid. That is, it inflated financial assets, benefited the
rich, and enhanced inequality.

Asness also notes that the Fed is only now stopping QE and we’ve
still got a very loose monetary policy, so it’s not yet clear how
this whole grand experiment is going to play out.

It’s possible that as the “real economy” picks up, the Fed will
in fact be able to soak up all the money it’s pumped into the
system at exactly the right rate so that it doesn’t cause any
stalls or undue inflation (whatever that might be). Given the
general failure of the last several years (decades? centuries?) of
macroeconomic planning to fine-tune the economy, I’m skeptical. For
those who need convincing of economists’ ability to tinker with the
economy like a Formula One car engine, I highly recommend Robert
Samuelson’s
The Great Inflation and Its Aftermath, which catalogues
the folly and hubris of a previous generation of ultra-hubristic
folks who really do deserve to be considered fools and knaves.

Asness’s whole piece is well worth reading.
Check it out here.

There were thousands of
chemical weapons in Iraq, some of which harmed
Americans, according
to a lengthy new investigative report in The New York
Times—and the public, members of Congress, and even members of
the military were misled about their existence. Nor were they the
chemical weapons that the Bush administration said the U.S. was
going after when it attempted to justify the military operation
that became the Iraq War. 

According to the report, American troops and Iraqi allies found
roughly 5,000 chemical weapons in various forms, including a single
depository of about 2,400 warheads, between 2004 and 2011. In six
separate instances, American troops or allies were wounded by the
weapons. The New York Times managed to get in touch with
17 American troops, as well as seven Iraqi cops, and talk to them
about the experience. The military says there were at least a few
more who were injured by the hushed-up chemical arms, but won’t say
exactly how many. 

These were not products of the active, ongoing chemical
weapons program that the Bush administration claimed existed and
had to be stopped when it first made the case for war in Iraq. All
the weapons were all more than a decade old by the time they were
discovered. Most were made in the 1980s, and every single one of
them had been created before 1991. 

The Times says flatly that “the discoveries of
these chemical weapons did not support the government’s invasion
rationale.”

Their existence was a closely kept secret, even within the
government. As the Times notes:

Since the outset of the war, the scale of the United States’
encounters with chemical weapons in Iraq was neither publicly
shared nor widely circulated within the military. These encounters
carry worrisome implications now that the Islamic State, a Qaeda
splinter group, controls much of the territory where the weapons
were found.

The American government withheld word about its discoveries even
from troops it sent into harm’s way and from military doctors. The
government’s secrecy, victims and participants said, prevented
troops in some of the war’s most dangerous jobs from receiving
proper medical care and official recognition of their wounds.

Soldiers who were aware of the discoveries were ordered to keep
quiet about them, and even to mislead Congress about what they
knew. “‘Nothing of significance’ is what I was ordered to say,”
retired Army Major Jarrod Lampier tells the Times. Lampier
was on site when the biggest chemical weapons dump, containing
2,400 warheads, was found.  

The secrecy compounded the dangers posed by the weapons,
creating a cascade of failures:  

In case after case, participants said, analysis of these
warheads and shells reaffirmed intelligence failures. First, the
American government did not find what it had been looking for at
the war’s outset, then it failed to prepare its troops and medical
corps for the aged weapons it did find.

Why didn’t the government reveal their existence? Possibly
because they were embarassed that they were wrong, or perhaos
because in some cases the U.S. and some of its Western allies had
played a role in designing or creating the weapons in the first
place:

Participants in the chemical weapons discoveries said the United
States suppressed knowledge of finds for multiple reasons,
including that the government bristled at further acknowledgment it
had been wrong. “They needed something to say that after Sept. 11
Saddam used chemical rounds,” Mr. Lampier said. “And all of this
was from the pre-1991 era.”

Others pointed to another embarrassment. In five of six
incidents in which troops were wounded by chemical agents, the
munitions appeared to have been designed in the United States,
manufactured in Europe and filled in chemical agent production
lines built in Iraq by Western companies.

All in all, it looks like the revelation of another colossal
failure in what is already widely recognized as a colossal failure
of a war. (But hey, if at first you don’t succeed, try
and try again.)

• Footage of Hong Kong police
  beating a pro-democracy protester has gone viral;
  officials say the officers involved will be suspended. 
• The U.S.
  Supreme Court stepped in to block several parts of a
  much-contested Texas abortion law, which the 5th Circuit Court of
  Appeals upheld earlier this month. 
• Twenty-eight Harvard Law School faculty members issued a
  
  statement opposing the school’s new sexual harassment and violence
  policy, which they say is “overwhelmingly stacked against the
  accused”. 
• A second Texas health worker has tested
  positive for Ebola.
• 
  Google Glass addiction is here. 
• Feminist video-game critic Anita Sarkeesian—a controversial
  figure in the ongoing #GamerGate dustup—canceled
  a planned talk at Utah State University after the school
  received threats of a “Massacre style attack” if the talk took
  place. 
• How
  whiskey conquered vodka in the U.S.  

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