I listened to Raghu Rajan deliver the first Andrew Crockett Memorial Lecture at the BIS last Sunday (written version here). Raghu’s lecture followed several moving tributes to Andrew’s remarkable contributions to policy at the IMF, the Bank of England, the BIS, and the Financial Stability Forum. During the past several years until he died last September, Andrew was an active member in the Working Group on Economic Policy at Stanford’s Hoover Institution and contributed to our most recent book in Bankruptcy Not Bailout. Andrew always conveyed clear sensible messages in a diplomatic style that made people listen.
Raghu’s message in the Crockett lecture was also clear and sensible. The title “A Step in the Dark: Unconventional Monetary Policy After the Crisis” conveyed his main message that unconventional monetary policy—such as quantitative easing in the United States—has not worked to help the economy grow during the past four years. Though his style was polite and respectful of the central bankers present, he did not mince words. For example, he paraphrased Churchill near the end of his talk to describe the unconventional policies: “Never in the field of economic policy has so much been spent, with so little evidence, by so few”
I have been critical of the Fed’s quantitative easing for quite a while now. In September 9, 2010 I wrote in the Wall Street Journal that the last thing we needed as “another large dose of quantitative easing in which the Fed’s balance sheet explodes even further, raising more uncertainty about how it will ever be unwound.” So I largely agree with Raghu about the ineffectiveness. Moreover, I would say that the list of people in agreement is getting longer and longer, though some of the central bankers who responded to Raghu, such as Bill Dudley (remarks here), do not yet agree.