As Paul Krugman always likes to recount, strange things happen at the zero bound. Macroeconomics gets weird. Liquidity traps prevail. And a whole slew of paradoxes come into being.
And that’s largely because below the zero bound things get even stranger still.
What you think should happen, doesn’t, and what you think definitely won’t happen, does. Furthermore, negative interest rates don’t just kill off the traditional point of banking, they encourage bad incentives and dubious market practices for all purveyors of capital. Read more
From the opening to Mario Draghi’s speech at the Brookings Institution on Thursday:
As I was preparing these comments, I happened to re-read John Maynard Keynes’ open letter to President Franklin D. Roosevelt, published in the New York Times in December 1933. In it, Keynes tells President Roosevelt that the administration is engaged simultaneously in recovery and reform, and identifies a tension between the two. He worries especially about the risk that over-hasty reform impedes recovery. Read more
Love him or loathe him, Robert Skidelsky’s prose always makes for a good read.
His latest offering comes by way of Project Syndicate and relates to the issue of robots and the rise of automation. To what degree are we really approaching a leisure society and how best to respond to the changes afoot? Read more
Christine Lagarde has urged countries to put a brake on austerity measures amid signs that the IMF is becoming increasingly concerned about the impact of government cutbacks on growth. Ms Lagarde, IMF managing director, cautioned against countries front-loading spending cuts and tax increases. “It’s sometimes better to have a bit more time,” she said at the annual meetings of the IMF and the World Bank on Thursday.
The fund warned earlier this week that governments around the world had systematically underestimated the damage done to growth by austerity. Read more
Alternative working title: When Orson Welles meets finance.
We discussed Fantasy Fed options on Wednesday. But here’s one from Paul Krugman, which we definitely overlooked — ironically, possibly the most fantastical of all. Read more
Remember that time we said economists were fractious creatures? Forgive us, we misspoke. They’re *really* fractious creatures.
Exhibit A – Paul Krugman’s blog post of July 2 at 7:47am, and headlined: Read more
It was bound to happen – the return of the anti-Keynesians en force. Their case: mass government stimuli are no solution to a) a global crisis and b) a crisis of debt that transcends all previous crises of debt in terms of size. There’s also the fact that Keynes wasn’t always right on everything. Hence his famous quote: “When the facts change, I change my mind…”
Don’t get us wrong, we know there have always been anti-stimulus mumblings. But we feel it is only now that the concept is really picking up any noticeable momentum – the mainstream press having largely lapped up the concept of ‘stimulus’ spending as an economic fait accompli. Read more