Blaming Bernanke For QE2April 25, 2011 6:22 am
NYTimes has an article today titled “Stimulus by Fed Is Disappointing, Economists Say”. The key argument being put forth is that the bond buying program did not achieve enough – there has been no significant improvement in many parameters including growth inflation and employment.
This kind of blame is classic narrative fallacy. Let us look at the definition of Narrative Fallacy again:
“Our need to fit a story or pattern to a series of connected or disconnected facts”
This from the article:
“I wasn’t a big fan of it in the first place,” said Charles I. Plosser, president of the Federal Reserve Bank of Philadelphia and one of the 10 members of the Fed’s policy-making board. “I didn’t think it was going to have much of an impact, and it complicated the exit strategy. And what we’ve seen has not changed my mind.”
Thats classic “I told you so” – which is a clear symptom of Narrative Fallacy. We believe the response from The Economist – Who’s disappointed in QE2? nails it:
“The Fed chose a direction rather than a destination, and when its action left it short of the destination, it opened the door to criticism that the direction was wrong, when in fact it may simply have traveled an insufficient distance (perhaps thanks to unexpected headwinds). If you target a destination, you don’t run into that problem.”