Tyler Cowen on the Fed's QE3

He writes:

I say the rate of price inflation is going up. I see this as a free lunch, and I am quite curious to find out just how big or small of a free lunch it is going to be.

I am in agreement with Cowen on price inflation---and happy to note he appears to be using the Austrian distinction between "price inflation" and "monetary inflation" that some of us are using.

That said, I'm not sure what he means by the Fed printing being a free lunch. One of the good things Milton Friedman brought to the attention of the world is that there is no thing such as a free lunch, and that certainly holds for QE3.

If the money ends up in excess reserves, it won't impact the economy or add to price inflation. However, if banks loan the money out and thus keep the money in the system, the last thing it is going to be is a free lunch. It will mean distortions in favor of those sectors where the money is loaned out.

Also, in a survey of tweets on the Fed easing, Cowen posted this one:

Evan Soltas wrote:

It needs to be said that today’s FOMC statement is a major intellectual win for econ bloggers and academics.

Since, the FOMC statement is terrible economics, holding that the printing of money can somehow "boost" the economy, it shows that the blogsphere has a long way to go in its battle with government financed academic economists.

Oh, btw, if you don't know who this Evan Soltas is that Cowen has decided to feature, he is a total up and coming elitist. He is currently a student at Phillips Exeter Academy and next year will attend Princeton University as an economics major, where Bernanke headed the department and where Paul Krugman presently teaches. Which means he probably won't even be taught the broken window fallacy correctly.

(ht Taylor Conant)