For some of the reasons that have been supported here by Steve and George, a WSJ editoral argues that Milton Friedman's monetary policy analysis could be used to defend QE2 in our current economic context.
I remain unpersuaded that any of these arguments for QE have the upper-hand either analytically or political economy wise. Part of the reason for my skepticism comes from my reading of Milton Friedman's critical review of Lerner's The Economics of Control that can be found in his Essays in Positive Economics. Friedman chides Lerner for providing a logically coherent but irrelevant discussion of matters of economic policy precisely because Lerner did economic analysis as if in a vacuum and as a result does not adequately address the "administrative" side of public policy. By administrative side, I read Friedman as making both incentive and information based critique. These arguments need to be internalized into all economic analysis. To ignore them is to engage in perhaps logical but irrelevant economics, which in my book is bad economics.
So now lets think through QE2 and the "administrative" side of monetary policy. Once that aspect of the analysis is taken into account, I think I'll side with Mises. Trying to cure a man with bronchitis by shooting him in the chest is not a very effective form of medicine.
Please folks, lets emphasize the #1 rule of public policy --- "Do No Harm."
HT: Scott Beaulier.