Noah Smith, Columnist

Reality Might Topple a Beloved Economic Theory

The easy money of quantitative easing is often seen as a way to prevent deflation and recession, but it might cause both.

November 4, 2014 at 4:56 PM UTC

By Noah Smith

Noah Smith is a former Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

More of it sometimes adds up to less. — More of it sometimes adds up to less.

Provide news feedback or report an error

Site feedback:

Take our Survey

This article is for subscribers only.

So QE-infinity is done. Many and long will be the arguments about whether quantitative easing helped the U.S. economy, and what the costs were -- or will be. Most of those arguments will be between those who think quantitative easing just doesn't get much traction in the economy and those who think that it has a big effect.

But what if QE had the opposite of the intended effect? That is the claim of a small but well-credentialed group of macroeconomists that I once labeled the "Neo-Fisherites," after the famous monetary economist Irving Fisher. These economists wonder if quantitative easing reduced inflation, instead of increasing it as many feared it would. The Neo-Fisherites go even further than that -- they wonder if low interest rates, which we usually think of as being inflationary, are actually deflationary!