Can America recover ideal rates of growth through interest-rate policies? This important analysis suggests that most economists misunderstand the issue. Updating Keynes, the analysis suggests that fiscal stimulus, labor union bargaining power, and more progressive income taxes are needed to support growth. (The article includes some algebra, which some readers may choose to skip.)
The main points of this paper are that loanable-funds macroeconomic models with their “natural” interest rate do not fit with modern institutions and data. Before getting into the numbers, it makes sense to describe the models and how to think about macroeconomics in the first place....Unfortunately, the article cited is behind a paywall. This is a useful short summary however.
Naked Keynesianism
Lance Taylor — The “Natural” Interest Rate and Secular Stagnation: Loanable Funds Macro Models Don't Fit Today’s Institutions or Data
Lance Taylor | Arnhold Professor of International Cooperation and Development and director of the Center for Economic Policy Analysis at the New School for Social Research
"Natural interest rate?"
ReplyDeleteHahahahaha
Musgrave's natural rate of interest theory.... you read it here first (lucky you). It goes like this.
ReplyDeleteThe only regime where a genuine free market rate of interest obtains is one where the creation of money by private banks is banned, i.e. the only money is base money. Reason is that there is no particular reason why money lenders (aka banks) should be allowed to create money any more than car manufacturers or restaurants. I.e. all types of firm should compete on equal terms for money. If money lenders are allowed to print money, then some of the money they lend out costs them nothing to come by. Ergo interest rates will be artificially low. Likewise, if only car manufacturers created money, cars would be artificially cheap.