What do I mean by saying that everything changes [at the so-called zero lower bound]? As I wrote way back when, in a rock-bottom economy “the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.” Government spending doesn’t compete with private investment — it actually promotes business spending. Central bankers, who normally cultivate an image as stern inflation-fighters, need to do the exact opposite, convincing markets and investors that they will push inflation up. “Structural reform,” which usually means making it easier to cut wages, is more likely to destroy jobs than create them.This may all sound wild and radical, but it isn’t. In fact, it’s what mainstream economic analysis says will happen once interest rates hit zero. And it’s also what history tells us. If you paid attention to the lessons of post-bubble Japan, or for that matter the U.S. economy in the 1930s, you were more or less ready for the looking-glass world of economic policy we’ve lived in since 2008.
Blogs I Follow
- TESS, the Transiting Exoplanet Survey Satellite, was launched into orbit today
- What students learning R in Econ 41-42 can aspire to…
- Understatement of the year of housing in California
- Housing bill SB 287 defeated in committee in California
- Ha Jin’s War Trash upends everything economists thought they knew about war and conflict
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