Testing the thesisThe problem with any line of economic policy argument is that there often isn’t much of a way to test any one thesis in order to prove or disprove the underlying claim. There is, for example, no laboratory where we can test side-by-side how QE performed for the U.S. economy versus an alternative scenario without QE. If we had that ability, we could get a better idea of whether QE, zero interest rates, fiscal stimulus or other programs work. Alternatively, we could run experiments about what would happen if there was no central bank or federal government economic intervention, letting the system cleanse itself of excesses. If only. Instead, many pundits fall back on partial arguments without recognizing what the lack of a counterfactual means to their analysis. As we noted two years ago:
This flawed analytical paradigm has many manifestations, and not just in the investing world. They all rely on the same equation: If you do X, and there is no measurable change, X is therefore ineffective.The problem with this non-result result is what would have occurred otherwise. Might “no change” be an improvement from what otherwise would have happened? This, or course, has consequences not just for economic-policy choices, but also for corporate decision-makers, investors and — not least of all — voters in the U.S. presidential election.