So okay. I read this whole thing and it's written in such an exasperated and absolutist manner that only rubbed off on me as I went through the article. It keeps bringing up the riling ideas of "ooh look how dumb politics is" and "woahhh the Fed isn't under a democratic process ooh isn't that scandalous" but it's just like, can you just talk about the economics? Because the article is good at that for the most part.
I agree with the big overall message, though I suspect it is for different reasons than the author has. Monetary policy is interesting, but using fiscal policy and not having a deadlocked Congress would be nice. Maybe it's just because I'm a college student who heard about QE all the way back when I was a freshman, but QE doesn't seem all that revolutionary to me. It's just an extension of the Keynesian idea of the money multiplier. Seignorage, QE, interest rate slashing, the way I roughly can explain what I've learned is that any method of increasing the money supply will give a short-run boost to growth or GDP, but inflation will rise as well and negate that effect. The only reason why money is not neutral in the short AND long run can be explained pretty well I think by Lucas's Money Misperceptions model.
In America, I'd say that QE is rising to hold off negative consumer expectations of defaulting on our loans that is caused by our government not changing the damn budget. In other places, I don't know why there is more QE. Perhaps governments everywhere are just spending too much. It's weird hearing that the UK, which is generally more open and friendly towards austerity policies, doesn't mind the huge money pump their Fed is hosing around, but maybe the article has a good point about how the public selectively pays attention to things. At any rate, my biggest qualm with this article is their flippant dismissal of Reinhart and Rogoff's 2010 model. 90% debt-to-GDP isn't always going to be the tipping point for when people will stop wanting to loan to us, since that depends on consumer expectations, central bank independence, etc, but I think those guys were onto something with that study, and it's a shame they've been so fast to turn around. They should've just redone the study without dumb goofs and say, "okay, we think we got it this time."
In an infinite period model, a gov't will have some sort of debt and at their discounted value, which should equal the interest rate, they will be okay with paying the interest on their loan forever (or more, if their beta patience value changes over time). The transversality condition has to hold that debt doesn't balloon out of proportion, but here we are with our debt growing faster than our GDP so that the debt-to-GDP ratio keeps increasing. At some point, lenders will realize that we can't pay our interest rates very well, they'll stop lending to us, and we'll be forced to raise revenue through either seigniorage (ick) or taxes, which is not a pleasant situation. Better to raise taxes now a little than a lot in the future in order to benefit the consumers who are trying to consumption smooth.
We aren't at that catastrophe ratio yet, but the idea is still really relevant I feel. I'm not saying there's like perfect Ricardian equivalence in how consumers respond to expected tax rate hikes (it won't be lump sum if we hit a default) but we really need to change spending. How much borrowing is too much? I don't know man, I really don't. I just know we don't want to find out. To be honest, I wouldn't even mind too much if we had automatic cuts come into effect across the board (well, I guess I say that now, but...). That won't happen of course because politics is this big Ramsey time-inconsistency problem of promises and pushing back dates and ugh. I ultimately have to agree with current Republicans that we have to lower spending--even if they spent a lot when they were in power.