The Menace of Fiscal QE

As the Federal Reserve struggles to fulfill its mandate in a world of low and falling interest rates, it faces yet another challenge: that of resisting a new threat to its hard‐​won independence.

Thanks to crisis‐​era changes to its operating procedures, the Fed now enjoys practically unlimited powers of quantitative easing (QE): it can buy as many assets as it likes while still controlling inflation. So far, QE has been a weapon for combating recession. But if certain politicians have their way, the Fed may be forced to use it not for macroeconomic purposes but to finance backdoor spending. That’s The Menace of Fiscal QE.

In his brief but systematic study, George Selgin reviews the movement favoring fiscal QE, shows how it threatens both the Fed’s independence and democratic control of government spending, and counters claims that it offers a low‐​cost means for financing such spending. Finally, he suggests a way to guard against fiscal QE without limiting the Fed’s ability to counter slumps

“While monetary and fiscal policy can be coordinated and conscious of one another, conflating the two would be perilous—for our economy and our democracy. In The Menace of Fiscal QE, George Selgin explains why. You should read and heed his warning.”

— Peter R. Fisher, former undersecretary of the U.S. Treasury

“A fascinating critical overview of an idea that is gaining traction left, right, and center.”

— Peter Conti-Brown, author of The Power and Independence of the Federal Reserve (2016)

“George Selgin’s wide-ranging and deep analysis and proposals deserve wide attention and debate.”

— Sir Paul Tucker, former deputy governor of the Bank of England