This is the question posed by philosophers Alex Rosenberg and Tyler Curtain in a New York Times blog post.
“Economics helps] protect us from ‘the knave’ within us all, those parts of our selves tempted to opportunism, free riding and generally avoiding the costs of civil life while securing its benefits. [It also helps us] fix … bad economic and political institutions (concentrations of power, collusions and monopolies), [and] improve … good ones (like the Fed’s open-market operations).”
What’s interesting about that last parenthesis is that it isn’t explained or defended in any way. It is just taken for granted that the Fed’s open-market operations are a shining example of overcoming knavery and opportunism. How very odd. This is not only taken to be true. It is taken to be self-evident enough to belong in a parenthesis.
There is nothing, one must say, that is new about this parenthesis. Contemporary Keynesian economists such as Christina Romer, Robert Schiller, and Paul Krugman usually just assume that their positions are beyond dispute, since they rarely offer any evidence or arguments in support of them. They treat their assumptions as self-evident, so why should not these philosophers?
Still, these philosophers must be smart. They have PhD’s. They teach. Don’t they worry even a little that the Fed’s money printing sprees are making Wall St. rich while impoverishing the poor and middle class, whose real incomes keep falling? Don’t they worry even a little about this cornucopia of newly created money providing the fuel for unprecedented budget deficits and for an explosion of crony capitalist deals? If that doesn’t bother them, how about the now widely recognized fact that money creation (aka quantitative easing) and interest rate suppression have decreased the very economic demand that Keynesians clamor for, decreased it because of the loss of income and investment from savers?
What about the way open market operations are conducted? Does that really make us better people? Is the deception and slight of hand necessarily involved in these techniques really part of a moral rearmament program? If the government issues bonds, sells them to banks, and then secretly buys them right back with newly created money, is that helping us build moral character?
Keynes had it right when he described open market operations as a “trick,” and an opportunistic, free riding one at that.