A debate on negative interest rates.
YES, Thomas Palley: “One can have too much of a good thing”.
NO, Adam Posen: “Negative interest rates have proved useful”.
Archive for the ‘U.S. Policy’ Category
Are Negative Interest Rates Dangerous?
Wednesday, January 18th, 2017The Federal Reserve Raising Interest Rates is Unwelcome and Unnecessary
Friday, December 16th, 2016Wednesday’s decision by the Federal Reserve to raise interest rates is unwelcome and unnecessary. As admitted in its statement, investment remains soft, growth is only moderate, and inflation expectations are little changed. Moreover, the economy confronts financial headwinds from the recent jump in long term interest rates and an even stronger dollar.
The Federal Reserve seems to be relying on old economic thinking that should have been discarded after the financial crisis. That poses a danger the economy will be slowed before full employment is reached, putting a stop to workers reclaiming their fair share.
If the Federal Reserve is worried about financial market exuberance, it should use its regulatory tools and not the blunderbuss of higher interest rates. Financial markets must not be allowed to stampede the Fed into raising rates.
To President Obama and Secretary Clinton: In the name of god, go
Tuesday, November 15th, 2016Dear Secretary Clinton and President Obama:
On April 20, 1653, Oliver Cromwell spoke these words to the Long Parliament:
“You have sat here too long for any good you have been doing… Depart, I say, and let us have done with you. In the name of god, go.”
Secretary Clinton, you are rightly being blamed for the electoral tragedy that has befallen our country. The country wanted change and you offered continuity. You prided yourself on the neoliberal economic policies of your husband, President Bill Clinton, which have driven our country into stagnation and despair. Your rejection in Wisconsin, Ohio, Michigan, and Pennsylvania speaks to a greater rejection of the economic policies you, your husband, and your Third Way associates imposed on the party of Franklin Roosevelt.
President Obama, you too deserve enormous blame. You wasted the historic opportunity at the beginning of your presidency to break with neoliberal economics. Instead, you pushed Obamacare with its expensive sub-standard insurance that is punitively imposed on the self-employed. Donald Trump benefitted enormously from the premium increase notices that were received up and down the country in the week before the election. And at the end, you pushed the Trans-Pacific Partnership, another neoliberal globalization agreement, which ceded the economic argument to Mr. Trump. Your charm and intelligence are no substitute for the economic change we need, you promised, and then reneged on.
Cromwell’s words apply to both of you. Heed them and be gone.
Sincerely,
Tom Palley
An Undergraduate’s Question about Economic Policy
Wednesday, October 5th, 2016I received an e-mail from an undergraduate economics student who was curious about economic policy in Washington, DC. His question says a lot about the current state of affairs. Here it is with my reply.
From: Xxxxxxx Xxxxxxx [mailto:xxxxxxxxxxxxxx@xxxx.com]
Sent: Saturday, October 1, 2016 10:56 AM
To: mail
Dear Dr. Palley,
I am a first-year undergraduate in economics and political theory, and a longtime admirer of your work.
What are your thoughts on how Keynesian/Post-Keynesian ideas are treated in current political discourse?
I was in Washington D.C. recently and I had conversation with a Brookings fellow who told me that he thought Joseph Stiglitz was an “extremist who isn’t taken seriously by anyone who knows their way around the Beltway.”
Does it worry you that ideas which used to be considered “mainstream” (like social democracy) are now increasingly considered “extreme”?
Deeply grateful for your time and attention
Sincerely
Xxxxxxx Xxxxxxx (more…)
The Federal Reserve Must Rethink How it Tightens Monetary Policy
Monday, September 12th, 2016After more than 7 years of economic recovery, the Federal Reserve is positioning itself to tighten monetary policy by raising interest rates. In light of the wobbly reaction in financial markets, an important question that must be asked is whether raising interest rates is the right tool.
It could well be that the world’s leading central bank is going about the process of tightening in the wrong way. Owing to the dollar’s preeminent standing, that could have severe global repercussions.
Just as the Fed has had to rethink how it combats recessions, so too it must rethink how it transitions from an easy monetary policy stance to a tighter stance. (more…)
Why ZLB Economics and Negative Interest Rate Policy (NIRP) are Wrong: A Theoretical Critique
Tuesday, July 19th, 2016NIRP is quickly becoming a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian economic logic that asserts interest rate adjustment can ensure full employment. That pre-Keynesian logic has been augmented by ZLB economics which claims times of severe demand shortage may require negative interest rates, which policy must deliver since the market cannot. Regarding policy assessment, NIRP turns a blind eye to the possibility that negative interest rates may reduce AD, cause financial fragility, create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow, promote currency wars that undermine the international economy, and foster a political economy that spawns toxic politics. Worst of all, NIRP maintains and encourages the flawed model of growth, based on debt and asset price inflation, which has already done such harm. [READ PAPER]
Betrayed Again: TPP’s Unconvincing Economic and National Security Arguments
Tuesday, July 5th, 2016Voters of all stripes have recognized the Trans-Pacific Partnership (TPP) as another betrayal of working people, and they have resoundingly rejected it. Despite that, President Obama continues to push it, to the extent of possibly seeking passage in a “lame duck” session of Congress.
President Obama’s pushing of the TPP is recklessly irresponsible politics that benefits Donald Trump who is the outsider candidate. Hillary Clinton is the insider who has touted her links to President Obama, and she still lacks credibility regarding her TPP opposition because of her past endorsement.
In the current dangerous political climate there is no room for error. Yet, that is what we have. Clinton has refused to condemn the TPP in the Democratic Party platform, setting herself up for Trump. Not only does she risk handing the issue to Trump, giving him the economic high-ground, she also sets herself up as “crooked Hillary”. She was for the TPP, then she was against it, and now she is for it again? That plays into voters’ worst assessment of her character.
As for President Obama, he must be made to realize that every time he pushes the TPP, he might as well be campaigning for Donald Trump. (more…)
Why Negative Interest Rate Policy (NIRP) is Ineffective and Dangerous
Wednesday, June 29th, 2016NIRP is quickly becoming a consensus policy within the economics establishment. This paper argues that consensus is dangerously wrong, resting on flawed theory and flawed policy assessment. Regarding theory, NIRP draws on fallacious pre-Keynesian economic logic that asserts interest rate adjustment can ensure full employment. That fallacious logic has been augmented by ZLB economics which claims times of severe demand shortage may require negative interest rates, which policy must deliver since the market cannot. Regarding policy assessment, NIRP turns a blind eye to the possibility that negative interest rates may reduce AD, cause financial fragility, create a macroeconomics of whiplash owing to contradictions between policy today and tomorrow, promote currency wars that undermine the international economy, and foster a political economy that spawns toxic politics. Worst of all, NIRP maintains and encourages the flawed model of growth, based on debt and asset price inflation, which has already done such harm. [READ MORE]
Brexit: The Day We Entered the Eye of the Maelstrom
Sunday, June 26th, 2016In years to come, the Brexit referendum may come to be seen as the day we entered the eye of the maelstrom that now promises enormous destruction. The immediate consequence looks to be a possible financial crisis, but even if that is avoided the other costs of Brexit will not be.
The European economy was already on the outer circle of the maelstrom. Brexit has swept it into the eye, accelerating the process whereby social alienation and bad economic outcomes produce bad political outcomes, and bad political outcomes produce worsened economic outcomes and further social alienation. (more…)
Year of the Outsider: Why Bernie Sanders’ Democratic Rebellion is so Significant
Tuesday, April 5th, 20162016 was supposed to have been the year of Jeb Bush versus Hillary Clinton: the year when the established Bush dynasty confronted the upstart rival Clinton Dynasty. But the year of the insider has turned into the year of the outsider. On both sides, voters have unexpectedly given vent to thirty years of accumulated anger with neoliberalism which has downsized their incomes and hopes.
Though the Republican rebellion has been more clear-cut in its dismissal of insider candidates, it is Bernie Sanders’ Democratic rebellion that is of potentially far greater historic significance. (more…)