4 ms·

That's a great article! I read about 3/4 and I'll come back for the rest. Your arguement is the ying to my yang. Where I depart is: wages adjust much more slow

That's a great article! I read about 3/4 and I'll come back for the rest. Your arguement is the ying to my yang. Where I depart is: wages adjust much more slowly than assets. Wages are negotiated over long spans of time vs. liquid assets. Wage holders think they're negotiating for real value X but it's eroded. Just look at baby boomers. Their wage flows are ~ fixed. Sure many get the benefit of asset appreciation but the ones that don't (get word) are crushed.

RA_Fisher 8y ago
The assertion that the gov has the equilibrium interest rate (price of money) set too high is unsubstantiated in the article. We've just been through quantitative easing, so it seems unlikely we're above equilibrium. If only we'd let the market choose!
- BenoitEssiambre 8y ago
  The natural rate is hard to measure so this is a difficult one to answer. And right now, in the US, my argument probably no longer holds that well (I wrote the post a while back). It looks like the uncertainty surrounding the aftermath of the 2008 crisis finally dissipated and unprecedented government deficit spending has pushed the equilibrium up, making it easier to follow for the Fed. This means there is enough private investment to keep the economy running well and people employed. Europe and Japan are still very problematic however. The simple fact that people, businesses and banks hoard cash and government bonds instead of doing sufficient investment to keep people employed is strong evidence to me that the returns on government paper is above market. Excess reserves are high into these parts of the world. A more widely recognized sign is that they keep undershooting their inflation target. For arguments from real economists, look around these parts https://www.davidbeckworth.com/popular https://www.davidbeckworth.com/popular, https://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ https://worthwhile.typepad.com/worthwhile_canadian_initi/nic... or https://faculty.insead.edu/fatas/ https://faculty.insead.edu/fatas/ One thing you can't rely on is the fact that central bank rates are zero in the problematic places. Zero is a high, above market rate when the equilibrium is negative. As I tried to emphasize in my medium post, negative rates can be quite normal and natural. If marginal private assets don't have a positive real rate on a risk adjusted, liquidity adjusted basis, the government shouldn't provide an artificial substitute. If they do, it puts a gridlock in large parts of the economy.

RA_Fisher 8y ago

The assertion that the gov has the equilibrium interest rate (price of money) set too high is unsubstantiated in the article. We've just been through quantitative easing, so it seems unlikely we're above equilibrium. If only we'd let the market choose!

BenoitEssiambre 8y ago
The natural rate is hard to measure so this is a difficult one to answer. And right now, in the US, my argument probably no longer holds that well (I wrote the post a while back). It looks like the uncertainty surrounding the aftermath of the 2008 crisis finally dissipated and unprecedented government deficit spending has pushed the equilibrium up, making it easier to follow for the Fed. This means there is enough private investment to keep the economy running well and people employed. Europe and Japan are still very problematic however. The simple fact that people, businesses and banks hoard cash and government bonds instead of doing sufficient investment to keep people employed is strong evidence to me that the returns on government paper is above market. Excess reserves are high into these parts of the world. A more widely recognized sign is that they keep undershooting their inflation target. For arguments from real economists, look around these parts https://www.davidbeckworth.com/popular https://www.davidbeckworth.com/popular, https://worthwhile.typepad.com/worthwhile_canadian_initi/nick-rowe/ https://worthwhile.typepad.com/worthwhile_canadian_initi/nic... or https://faculty.insead.edu/fatas/ https://faculty.insead.edu/fatas/ One thing you can't rely on is the fact that central bank rates are zero in the problematic places. Zero is a high, above market rate when the equilibrium is negative. As I tried to emphasize in my medium post, negative rates can be quite normal and natural. If marginal private assets don't have a positive real rate on a risk adjusted, liquidity adjusted basis, the government shouldn't provide an artificial substitute. If they do, it puts a gridlock in large parts of the economy.