Krugman’s blog, 11/1/15

How did it get to be November already?  There were two posts yesterday.  The first was “Job-Killing Obama:”


The second post was “Natural Confusion:”

Brad DeLong is bemused by the way Tyler Cowen makes very heavy going of the simple concept of the natural rate of interest. I will say that this kind of gratuitous complexification is somewhat characteristic.

Look, all we’re talking about is the rate of interest at which the economy would be more or less at full employment, which in turn implies that inflation will be more or less stable. Yes, you can raise some questions about the price-stability interpretation if the long-run Phillips curve isn’t vertical at low inflation, but that’s a fairly minor twiddle.

And to raise the old “equilibrium interest rates must be positive because capital is productive” line at this point — after two decades of Japanese experience and 7 years at the zero lower bound here in America — suggests a strange sort of out-of-touchness. As Brad says, the required rate of return on safe assets and the marginal product of capital are separated by a major wedge.

Anyway, what we need here isn’t a priori arguments or discussions of intellectual history, except insofar as they inform the question at hand: is there any reasonable case that interest rates are being kept “artificially” low given the macroeconomic realities? And there isn’t.




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