EVEN DOVES ARE HAWKS SINCE THE '70s:

In Defense of Ben Bernanke (ALAN S. BLINDER, 11/15/10, WSJ)

All in all, it looks like the nation and the world need an Economics 101 refresher. So let's start with the basics.

The Fed's plan is to purchase about $600 billion of additional U.S. government securities over about eight months, creating more bank reserves ("printing money") to do so. This policy is one version of quantitative easing, or "QE" for short. And since the Fed has done QE before, this episode has been branded "QE2."

Here's the first Economics 101 question: When central banks seek to stimulate their economies, how do they normally do it? If you answered, "by lowering short-term interest rates," you get half credit. For full credit, you must explain how: They create new bank reserves to purchase short-term government securities (in the U.S., that's mostly Treasury bills). Yes, they print money.

But short-term rates are practically zero in the U.S. now, so the Fed wants to push down medium- and long-term interest rates instead. How? You guessed it: by creating new bank reserves to purchase medium- and long-term government securities.

That sounds pretty similar to garden-variety monetary policy. Yet critics are branding QE2 a radical departure from past practices and a dangerous experiment.

The next charge is that QE2 will be inflationary. Partly true. The Fed actually wants a bit more inflation because, now and for the foreseeable future, inflation is running below its informal 1.5% to 2% target. In fact, there's some concern that inflation will dip below zero—into deflation. The Fed, thank goodness, is determined to stop that. We don't want to be the next Japan now, do we?

But might the Fed err and produce too much inflation? Yes, it might, leaving us with, say, 3% inflation instead of 2%. Or it might err in the opposite direction and produce only 1%. Neither outcome is desirable, but each is quite tolerable. To create the fearsome inflation rates envisioned by the more extreme critics, the Fed would have to be incredibly incompetent, which it is not.