Scott Sumner  

Two Nobel Prize winners, 18 years apart

Happy Birthday, F. A. Hayek!... Choose for Yourself, Not Other...

Here's Milton Friedman in 1998, talking about Japan:

Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy.

. . .

After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die.

And here's Joseph Stiglitz, in 2016:

Lowering the interest from 5 percent to 0 didn't bring a robust recovery. Lowering it from 0 to minus 1/2 percent isn't going to do it either.
I can still remember when economists knew the difference between interest rates and monetary policy.

But each year, it gets a bit harder to remember.

HT: Gordon

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COMMENTS (7 to date)
Benjamin Cole writes:

You can't win on this one.

"Interest rates are low and the Fed is dangerously accommodative" is just standard issue in many circles.

I won't say who, but one of the presidential candidates said he likes low interest rates. That was heresy in the political party once known as the GOP.

Andrew_FL writes:

Yeah Ben I'll bet the guy banks regard as a credit risk likes low rates. Probably hasn't been able to get them for a long time.

maynardGkeynes writes:

Is it not an equally plausible reading of the Stiglitz interview that he believes that neither low interest rates nor looser money is a solution? He may grasp the distinction (I'd be surprised at this point if he is not at least aware of the distinction Prof. Sumner has been making), but feels it is of no significance, because in his view, neither solves the problem.

Steve Sedio writes:

And here's Joseph Stiglitz, in 2016:

"Lowering the interest from 5 percent to 0 didn't bring a robust recovery."

Doesn't that indicate the problem is something other than interest rates?

What else has changed? What one, or multiple things in combination, have reached the tipping point?

Would you like a list?

Gordon writes:

Scott, I know at your other blog you covered how most of the decreases in the fed funds target was retroactive rather than proactive. But I don't recall that being mentioned here. And I really wonder how many economists are unaware of this.

Scott Sumner writes:

Maynard, Yes, he may understand the distinction, but if he does then the argument he provided is meaningless. The fact that rates being cut from 5% to 0% didn't solve the problem is of no relevance at all.

Gordon, My sense is that lots of economists are confused on this point.

Todd Kreider writes:

Well, Stiglitz was trained, taught, and published as a microeconomist until around 2000.

What economists like Larry Summers don't seem to understand is that Japan's growth per capita has been identical to that of the U.S. for the past 15 years.

The difference is that the U.S. had a 7 to 10 percent unemployment rate for years while Japan's peaked at 5.5 percent and is now around 3.3 percent. (The Japanese usually cut hours, not jobs.)

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