In that ye provoke me unto wrath with the works of your hands ...

Fran O'Sullivan doesn't like it when commentators present their readers with "very thin analysis". Perhaps she ought to stop doing so, then.

A wee while ago a bit of a spat took place between my (disclosure) Otago colleague, (full disclosure) friend and (way too much information) Guy-I'd-Turn-Gay-For, Bryce Edwards, and a couple of columnists at the New Zealand Herald. You see, as I'm sure all of you exceptionally well informed Pundit readers already know, Bryce puts together a (usually) daily compilation of political reportage, analysis and provocation from the MSM and blogs that serves as a basis for his own analysis of the issues of the day, which the Herald then carries in its on-line version. And two members of the Herald's full-time commentariat, John Armstrong and Fran O'Sullivan, took exception to how Bryce's analysis dealt with their particular contributions to the national discourse - before condemning the entire basis of his project (as well as the efforts of all the other leeching moochers out there who dare - DARE! - to try and emulate on-line the heroic deeds of Real Journalists (TM)).

I didn't get around to writing anything about this storm-in-something-smaller-than-a-teacup at the time. Others did so, Bryce was more than able to defend himself, and frankly the episode struck me as nothing more than a couple of old timers bitching about the fact that the new boy on the block wasn't giving them the full and unconditional respect they so obviously deserved (and dared to write about politics from a left wing perspective, to boot!) But nevertheless, one particular comment that Fran O'Sullivan made on her Facebook page about Bryce's work kind of stuck in my craw: 

Started off as a reasonable curation job but has morphed into the links purely being background for his left-wing thesis of the day - and some of the more recent examples beyond peurile (sic) - so he can get his name in lights off the back of a lot of other people's work. This is not robust political analysis but TVNZ et al swallow it. Sort of like whirling dervish opinion with each swirl gathering someone else's hard work to bolster very thin analysis.

Now, like any other person with free access to the interwebz and a Facebook account, Fran O'Sullivan can choose to slag off in highly personal terms other people's work. That's entirely her prerogative, just as if others think it reflects badly on her as an individual, then that's theirs. But remember, Fran O'Sullivan isn't just another chattering voice filling the cloud with packets of irrelevant data. She's also a Very Important Columnist in the New Zealand Herald, who does Real Journalism Work to bring to her readers Informed and Insightful Commentary on The Issues That Really Matter. So if she's going to start throwing stones at others for "not [giving] robust political analysis" and providing only "very thin analysis", then she better check she hasn't taken up residence in a glasshouse.

Exhibit A. In her Saturday column, Fran tells us that: 

I tuned in to the first debate between Barack Obama and Mitt Romney wanting to know when the United States would begin to seriously wean itself off its diet of debt.

What a disappointment.

One could point out that other commentators actually thought there was quite a bit of discussion between the two candidates about this issue, and that their proposed approach to it marks a significant point of policy difference between them. But fair enough ... Fran would have liked to have seen even more substantive debate on the point. She is, after all, a Serious Person who has Real Concerns for The Issues That Really Matter.

Which makes it a bit strange that she then leaps from expressing her deep despair that "a once proud capitalistic country has become so mired in debt, [and] so unprepared to live within its means" to railing against "the Federal Reserve ... priming the US economy by printing money."

I recognise that the space constraints of a print column can mean an author isn't able to fully expand on every point she wishes to make, but it sure looks here like Fran is of the belief that the "quantitative easing" (more on this in a moment) policies adopted by the Federal Reserve are the same thing as increasing the national debt through ongoing deficit spending. Or, as she puts it, "In financial terms it's like giving a drunk more booze to wean him off last night's hangover."

But ... no. It's not. It's really not. The ballooning US national debt problem is the result of the Federal Government not taking in enough money (because of past tax cuts and the generally depressed state of the economy), whilst still spending lots and lots (on things like bailouts for Wall Street, wars in the Middle East, as well as domestic "entitlement" programmes and the like). Simply put, the US is having to borrow from others (China especially) the money it is unwilling to either get from its own people (through taxes) or cut out of its budgeted spending.

That's a big problem and it needs to be fixed - as Fran quite rightly notes. But how is it related to the real bugbear she's writing about ... the Federal Reserve's policy of "quantitative easing" (or, colloquially, "printing money") to try and stimulate the economy? Well, it sort of sounds the same - isn't the Government "printing money" to increase its supply in the economy just like the Government "borrowing money" to spend on its activities? Both seem to involve using money "you don't really have" to try and paper over fundamental weaknesses in your economic performance.

Well,  if the US was using the money it is printing (which is an oversimplification of the process, but let's run with it) to pretend to pay off its existing debts, or to directly finance its deficit spending, then Fran might have a point in conflating the two issues. But that isn't what it is doing at all. It instead is using the "new money" to buy things like long-term bonds and mortgage-backed securities from private holders ... in essence, it is using the money to entice banks and other financial institutions to give up holding certain sorts of assets in the hope that they'll then lend the money they get for those assets to new private sector borrowers, which in turn will help stimulate the wider economy. 

Now, whether or not this policy is a good one, or will even work, is not the point here. The point instead is that there need not be any direct link between a country's debt problems (the topic with which Fran started her column) and a decision to run a quantitative easing policy. The former is a question of fiscal policy. The latter is a question of monetary policy. Which is why Switzerland, a country that has run budget surpluses for the last 5 years and so hardly is "unprepared to live within its means" also commenced a quantitative easing programme in 2011.

And in case there remains any doubt about the difference between the two issues, I'll let the Chair of the Federal Reserve explain it himself:

What's the relationship between monetary policy and fiscal policy? To answer this question, it may help to begin with the more basic question of how monetary and fiscal policy differ.

In short, monetary policy and fiscal policy involve quite different sets of actors, decisions, and tools. Fiscal policy involves decisions about how much the government should spend, how much it should tax, and how much it should borrow. At the federal level, those decisions are made by the Administration and the Congress. Fiscal policy determines the size of the federal budget deficit, which is the difference between federal spending and revenues in a year. Borrowing to finance budget deficits increases the government's total outstanding debt.

As I have discussed, monetary policy is the responsibility of the Federal Reserve--or, more specifically, the Federal Open Market Committee, which includes members of the Federal Reserve's Board of Governors and presidents of Federal Reserve Banks. Unlike fiscal policy, monetary policy does not involve any taxation, transfer payments, or purchases of goods and services. Instead, as I mentioned, monetary policy mainly involves the purchase and sale of securities. The securities that the Fed purchases in the conduct of monetary policy are held in our portfolio and earn interest. The great bulk of these interest earnings is sent to the Treasury, thereby helping reduce the government deficit. In the past three years, the Fed remitted $200 billion to the federal government. Ultimately, the securities held by the Fed will mature or will be sold back into the market. So the odds are high that the purchase programs that the Fed has undertaken in support of the recovery will end up reducing, not increasing, the federal debt, both through the interest earnings we send the Treasury and because a stronger economy tends to lead to higher tax revenues and reduced government spending (on unemployment benefits, for example).

So at the least, I'd suggest Fran is guilty of a very sloppy transition from a genuine problem to a somewhat unrelated policy, which risks confusing the reader as to the relationship between the two. At the worst, Fran opens herself up to accusations that she just doesn't understand the difference between fiscal policy and monetary policy. Which is something that you'd expect a Very Important Columnist in the New Zealand Herald, who does Real Journalism Work to bring to her readers Informed and Insightful Commentary on The Issues That Really Matter, to have a handle on.

I've then got a bunch of other rather pedestrian gripes about her analysis.

For example, Fran helpfully tells us that; "In the United States it's called 'quantitative easing'". Which is true, I guess ... but neglects to mention that the same policy being pursued in the United Kingdom and Switzerland also is called "quantitative easing", while the policy first got its name when pursued in Japan in the 1990s. In fact, you could just tell your readers that "this policy is called 'quantitative easing'", rather than make it out to be some sort of US-specific phenomenon.

Then Fran proceeds to inform us that "Federal Reserve chairman Ben Bernanke has indicated quantitative easing will end soon. But few serious players in the financial markets believe this is a final move." Possibly that is because the serious players in the financial markets don't get their information second hand from newspaper columnists, but instead look at what the Federal Reserve actually said:

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. ... The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. 

Do you see what that statement is saying? The Federal Reserve will keep putting $40 billion a month (of "newly printed money") into the economy for as long as it takes to get the unemployment rate down to a decent level. That's an open-ended commitment, not a statement that its actions will "end soon".

And finally, Fran opines that "the US desperately [needs bi-partisan cooperation] if it is to tackle the snowballing fiscal problems it faces as a result of the Bush tax cuts and Obama's Medicare." Let's give her the "Bush tax cuts" point, while carefully noting that lots and lots of Democrats in Congress voted for them, too. But "Obama's Medicare" as the (or even a) primary cause of the US's snowballing fiscal problems? Does she really mean the US's socialised healthcare programme for those over 65 which was put in place in ... 1965 (when Barak Obama was all of 4 years old)? The same programme that Romney (falsely, as it happens) accused Obama in the presidential debate of cutting by the tune of $716 billion over the next decade? Meaning Obama is responsible for this programme blowing out the US budget deficit ... how exactly? 

Or could Fran actually have meant "Obamacare" generally - the Affordable Care Act that is pretty much the sole policy win he got out of Congress in his term in office? The mandatory insurance coverage provisions of which, it is true, the Congressional Budget Office (CBO) thinks will involve "a net cost of $1,168 billion over the 2012–2022 period". Which sounds like an awful lot of money, until you realise that; "The Pentagon’s budget, including war costs, is $670 billion this year, or about 18 percent of total federal spending." So, you know, if you're going to point at things responsible for why the US can't afford to live like it does, there's a pretty big tank sitting right in the middle of the room. Furthermore, the CBO also thinks that "the budgetary impact of other provisions of the Affordable Care Act ... in the aggregate reduce budget deficits." So it's overall assessment of the policy is that it will end up saving the US money over time.

But all of this (believe it or not) is but a prelude to my main problem with Fran's column. You see, the bulk of Fran's article is a lament about the effect that the US's quantitative easing policy is having on the US dollar and its strength relative to New Zealand's. The point is that it is generally assumed that the more US dollars there are swirling around in the world economy, the greater their supply vis-a-vis the New Zealand dollar, and hence the lower their relative value. Fran seems to see this as the real goal of the US's quantitative easing policy - to keep the "NZ dollar [and other currencies] artificially high as a result of the deliberate US policy to lower the dollar and make its own exports more competitive."

This may or may not be true - I'd just note that it isn't what the Federal Reserve says it is trying to achieve (although it could be lying about the reasons for its actions, I guess). And it may or may not be true that quantitative easing actually is responsible for an "artificially depressed" US dollar in relation to the New Zealand one - although Ben Bernanke says it isn't (but I guess he could be lying about this, too). Let's for the moment accept both claims as gospel. That then poses a huge problem for New Zealand. 

Fran sums it up thus:

As China's growth motor slows our export industries are feeling the pressure of trying to compete in an environment where the NZ dollar is artificially high as a result of the deliberate US policy to lower the dollar and make its own exports more competitive. 


[I]n an environment where our economy is being made more marginal by the inability of Obama, Bernanke and also Romney to really face up to the need for the US to be a responsible player in the global economic environment, New Zealand also needs to pay more attention to its economic survival.

Right on, sister! So what are we going to do about it? Because Fran's with Hugh Fletcher, who had "the guts to speak out about this situation saying the 'fatalistic acceptance of a high exchange rate and big current account deficits is not good enough.'" Is she then going to join with the GreensLabour and New Zealand First in advocating that the Government's Policy Target Agreement with the Reserve Bank be amended to require it to intervene and seek to bring the dollar down - perhaps through New Zealand's own version of quantitative easing? 

No, she's got a much more radical and hard-hitting solution to the problem in mind:

Once he has finished buttering up the Hollywood moguls, Prime Minister John Key might think about giving a serve to the next incumbent in the White House over the current failure of the US to live up to the economic tenets that it has previously prided itself on.

That's right. On Planet Fran, the best way to respond to this existential crisis to our very economic survival is ... for the PM to get on the phone to the President of the United States and tell him that he and his nation must - MUST! - mend their ways. Never mind that we're an inconsequential nation of 4 million people at the bottom of the world whose PM gets to talk to the President roughly once every blue moon. Or that the policy she's complaining about actually is being implemented by the Federal Reserve Board, which is an independent body that the President does not control. Or that it has adopted this policy in an attempt to jumpstart a US economy that remains mired in its worst funk since the 1930s, besides which minor matters like "the need for the US to be a responsible player in the global economic environment" pale into less than insignifcance.

No - I'm sure that despite all of these minor and (quite frankly) carping points, a call from John to Barak or Mitt that passes on Fran's thoughts on the matter will sort everything out in a jiffy. Now ... I must remember ... what was that point Fran was making about commentators who only provide their readers with "very thin analysis"?