Just Smile, and Pretend You’re Absolutely and Unshakably Optimistic

To sum up QE and the problem with the zero lower bound: give people as little realistic information as possible. Leave them nothing other than the myths and fables. Don’t say there’s a problem, and don’t be specific about how you think you can solve it. Instead, just put on a smile and be happy, making sure the public sees in every speech and TV appearance that you are absolutely and unshakably optimistic.

The setting was surely an uncomfortable one. After all, the mild recession had ended more than a year and a half before. The work of the policymaking committee should have been done and over with, the heavy burden of stimulus being replaced by the warm, soothing afterglow of roaring recovery. If the one had become the other, the conversation would’ve been more and more about inflation, the signal of confirmation in a job well done.

What was on each and every official’s mind during those two days was instead deflation, its devastating and opposite monetary twin. Keynes was right about that, at least. Both monetary phenomena were forms of pure evil. But if you have to choose, inflation was obviously the lesser.

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