Economists agree: Print. Money. Now.

Andrew Leonard
Salon.com

It is no secret that economists Tyler Cowen and Paul Krugman have profound differences on the proper role of how government should manage the economy. Over the course of the ongoing economic crisis, they've engaged in an enlightening debate about such topics as the effectiveness of Keynesian fiscal stimulus policies via their respective blogs and New York Times columns. The libertarian-minded Cowen is a fiscal stimulus skeptic; Krugman, notoriously, is not.

So when the two men both greeted, with muted support, the surprise news that the Federal Reserve planned to engage in an aggressive strategy of "quantitative easing" to loosen up the credit crunch, you had to take notice. The Fed announced on Wednesday that it will buy $1.2 trillion worth of U.S. Treasuries and other bonds, in an effort "to provide greater support to mortgage lending and housing markets," and "to help improve conditions in private credit markets."

Freshly returned from a trip to Europe, Krugman called it a "good move." Cowen, meanwhile, noted "that this should have been our first move," because "it is more likely to work" than fiscal stimulus.

Other economists chimed in with their own support. But their very unanimity could be a cause for some dismay. Quantitative easing is a fancy way of saying "turned on the printing press." The expansion, out of thin air, of the Federal Reserve's balance sheet by $1.2 trillion is a sobering acknowledgment that Ben Bernanke believes the Fed needs to make the strongest possible moves to prevent an accelerating economic disaster. Everyone knows: There is a clear cost to massive quantitative easing. If you pump another trillion dollars into the money supply, the value of the dollar will fall. Inflation, long term, will rise. Since one of the Fed's most awesome responsibilities is to fight inflation, that alone tells you how nervous Bernanke must be.

(More here.)