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I think the author's point was that the interest rates have become decoupled from the information they would otherwise convey, in the absence of government inte

by drdec 4y ago

I think the author's point was that the interest rates have become decoupled from the information they would otherwise convey, in the absence of government interference. It is not that they are irrelevant, simply that they are not revealing any information about the underlying economy and are in that way "meaningless". I haven't thought enough about this to know if I agree or not, but that is what I understand the author's thesis to be.

notahacker 4y ago
It's a nonsense argument though (which tbf the author hints at understanding with the latter part of their post) A central bank setting base interest rates based on desire to converge on inflation targets rather than something completely arbitrary like the availability of a certain grade of shiny metal doesn't convey less actionable information, it conveys more.
- bko 4y ago
  The central bank has a dual mandate, control inflation and full employment. These are thought to be opposing forces in conventional economic theory (to increase employment, you want to lower interest rates, to lower inflation you want to increase interest rates). Although the relationship between interest rates and employment is not really empirically proven [0]. It's tough because it's not a closed system and you don't have a control. But the Fed assumes this relationship. The point is if you have a mandate pulling you to decrease a number and another equally important mandate pulling you to increase a number, it's kind of meaningless. You're essentially reading tea-leaves. You can justify anything really. I would prefer the central bank to control inflation as a single mandate through something like the Taylor Rule [1] and leave the employment mandate to the Legislative branch [0] https://www.stlouisfed.org/publications/regional-economist/april-2013/low-interest-rates-have-yet-to-spur-job-growth https://www.stlouisfed.org/publications/regional-economist/a... [1] https://www.investopedia.com/articles/economics/10/taylor-rule.asp https://www.investopedia.com/articles/economics/10/taylor-ru...

by drdec 4y ago

notahacker 4y ago

It's a nonsense argument though (which tbf the author hints at understanding with the latter part of their post) A central bank setting base interest rates based on desire to converge on inflation targets rather than something completely arbitrary like the availability of a certain grade of shiny metal doesn't convey less actionable information, it conveys more.

bko 4y ago
The central bank has a dual mandate, control inflation and full employment. These are thought to be opposing forces in conventional economic theory (to increase employment, you want to lower interest rates, to lower inflation you want to increase interest rates). Although the relationship between interest rates and employment is not really empirically proven [0]. It's tough because it's not a closed system and you don't have a control. But the Fed assumes this relationship. The point is if you have a mandate pulling you to decrease a number and another equally important mandate pulling you to increase a number, it's kind of meaningless. You're essentially reading tea-leaves. You can justify anything really. I would prefer the central bank to control inflation as a single mandate through something like the Taylor Rule [1] and leave the employment mandate to the Legislative branch [0] https://www.stlouisfed.org/publications/regional-economist/april-2013/low-interest-rates-have-yet-to-spur-job-growth https://www.stlouisfed.org/publications/regional-economist/a... [1] https://www.investopedia.com/articles/economics/10/taylor-rule.asp https://www.investopedia.com/articles/economics/10/taylor-ru...