September 16, 2012

How does QE3 create jobs?

I really don't get it.

Somebody please explain to me how the new round of quantitative easing is going to create jobs like it's meant to. It looks just like the previous two rounds of quantitative easing, in which the Federal Reserve prints money to buy mortgage-backed securities. Yes, those things that caused a bubble the bursting of which led to the crisis that we are still dealing with now, after four years.

More than $2 trillion went into the first round of quantitative easing, followed by $800 billion in the second round, dubbed QE2. Now, in its sequel, QE3, the idea is to pump $40 billion a month into those mortgages until unemployment goes down. Huh? Maybe it should rather be called QE∞, since this could go on ad infinitum.

What is supposed to happen is that interest rates on mortgages go down, making it easier to get and keep a mortgage, driving house prices up, buoying the stock market, making people feel richer so that they spend more money on stuff that somebody has to be hired to make so unemployment goes down.

Whew. Sounds like a Rube Goldberg contraption to me.

What I don't get - but I'm just a geek - is why you cant just go straight to job creation with all that money you've printed. I mean, there's plenty to do around here. If you decided to do something about the nation's crumbling infrastructure, you could give jobs to people who build things: a lot of jobs. Those people would have money to buy stuff, including homes, and that would have a knock-on effect creating more jobs. Not that I subscribe to economic growth ad infinitum - but I do believe in employment for everyone.

The nice things about getting stuff (re)built is that at the end you would have something to show for all that money you printed.

How about better roads? That's "better", not "more" roads. Smarter roads that ease congestion, with public transit either built in, or planned in so it's easy to put in later. Bicycle paths and walkways: the kind of stuff that will pay for itself through better health, and lowered dependence on fossil fuels.

How about a network of fast trains? Everybody else in the ripe world (and some in the developing world) seems to have them already, or are expanding on them. How come the birthplace of the long-distance railroad has, in 2012, not a single track that can accomodate a bullet train? Imagine doing New York to Chicago, or Houston to St. Louis, in 6 hours without the hassle of airport check-in and without the horrendous carbon footprint. Imagine San Francisco to Los Angeles in less than 3 hours. That one is coming, so they say, but an injection of funds would speed its construction.

How about updating the energy grid so we're ready for the late-21st century? Even without the projected load of a legion of electric vehicles, our power lines are tottering on the edge, and even a whisper of a storm can leave thousands of homes without electricity. Never mind the constant brown-outs. We turn off our computers at the approach of a storm; the brownouts can do a number on them. I clean out the fridge, even for a week's trip: I learned the messy way that you can't trust that it will stay on all that time.

These are just some transport-related items. Then there are really important things like our drinking water infrastructure. Don't get me started on healthcare. $40 billion a month is a clobber of money, just 30% less than the defense budget. The National Science Foundation has to make do with $7 billion a year.

Oh yeah: Congress. Almost forgotten about them. But Congress, the people who could tackle and authorise all these projects and make history doing it, is broken. A lot of people are saying that the Fed is using QE to act where Congress can't, or won't.

All this quantitative easing sounds to me very much like preparing for a marathon run, on the Appalachian Trail, by stocking up on syringes filled with those performance enhancing drugs, because the coach who is supposed to help train to strengthen muscles and lungs, has gone missing.

But I'm just a geek.

For more befuddlement, below is a video about QE1 and QE2, "Quantitative Easing Explained", by Omid Malekan. There is also a sequel, made in February 2012, "Quantitative Easing Revisited". See if you can watch them without laughing. In a grim sort of way.



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