tag:blogger.com,1999:blog-2761684730989137546.post5013631751325224246..comments2024-03-28T20:28:01.733-04:00Comments on Mike Norman Economics: Evan Soltas — How to Think About Malinvestment mike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2761684730989137546.post-30148962238308434652013-07-31T19:10:09.883-04:002013-07-31T19:10:09.883-04:00PeterP, I agree with your comment there on fiscal....PeterP, I agree with your comment <a href="http://esoltas.blogspot.com/2013/07/how-to-think-about-malinvestment.html?showComment=1375307175154#c4108580659296600370" rel="nofollow">there</a> on fiscal. Bu the issue here is not monetary v.fiscal but whether a cb setting the interest rate "too low for too long" promotes malinvestment as a general rule. <br /><br />I think that the cb setting the rate low to encourage investment in the economic sense (firm spending on capital goods) during downturn is unlikely to result in malinvestment in this sense. But it can result in leveraged speculation based on low borrowing cost driving up asset prices higher than they would be otherwise, which the Fed admitted was the intention of QE in order to increase the wealth effect as a spending channel to add to lagging demand, which would stimulate capital investment.<br /><br />Of course, MMT argues that this is uncertain as a transmission mechanism, although the low mortgage rates did cushion the fall in housing prices. Fiscal is the way to go to increase lagging demand directly by addressing demand leakage to saving-deleveraging in the pullback after "irrational exuberance," and a lot of fraud to boot, created a bubble.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-44117880384193261842013-07-31T17:49:47.477-04:002013-07-31T17:49:47.477-04:00I think it is Summers who is right, see my comment...I think it is Summers who is right, see my comment at Soltas blog. Summers supports fiscal policy. PeterPhttps://www.blogger.com/profile/02032621777697914182noreply@blogger.com