All the so-called benefits that you expect the eurozone countries to derive from a European Central Bank program of quantitative easing are myths. Myth number one: QE will spur an economy to greater production. Reality: QE will cause dislocations in the time structure of production, causing malinvestment mostly in longer term projects for which insufficient resources exist for successful and profitable completion, leading to capital decumulation and lower production. Myth number two: QE will weaken the euro against other currencies and lead to an export driven recovery. Reality: There is no way that an economic zone can force other economic zones to fund one’s own recovery. Debasing one’s own currency merely gives a bargain to foreign buyers, for which they should be very grateful, and transfers wealth within one’s own currency zone from the non-export industries to export industries. Myth number three: Higher prices (what you erroneously call “inflation”) will lead to economic prosperity. Reality: Higher prices will impoverish the masses of the people by forcing them to pay more for the necessities of life.
Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.