FWIW, one of the arguments against keeping the fed funds rate low for so long is that the last time the Fed did it, it encouraged a housing bubble and the accompanying financial bubble. The fear is the inflation of another bubble.[*]
Of course, it may be impossible at this point to have sustained growth of real GDP and employment without a financial and/or housing bubble -- or massive increases in military spending (or some other kind of government spending that doesn't step on the toes of business). [*] One of the interesting confusions in economics is between final products-price inflation (rising CPI, etc.) and financial or asset-price inflation (unsustainable extension of credit, a bubble). The so-called "Austrian" school points to the latter as occurring in the 1920s in the US, for example, and call it "inflation" even though the prices of goods and services weren't rising during this period. Because "inflation" is bad in their book, tighter monetary policy was called for before 1929. Of course, as with nowadays, the late-1920s growth of real GDP might not have occurred without the asset-price inflation. On Fri, Jun 4, 2010 at 8:24 AM, raghu <[email protected]> wrote: > Krugman with some very interesting observations on the "pain caucus". > > http://krugman.blogs.nytimes.com/2010/06/02/interests-and-ideas/ > -----------------------------------------snip > On the first point, the pain caucus isn’t being orchestrated in the > same way that, say, the cut-entitlements caucus (and it’s not the same > thing). For sure, the likes of Pete Peterson etc. are deliberately > pushing the line that Social Security must be destroyed; but it’s > really hard to see exactly where the line that the Fed funds rate must > rise is coming from. Or maybe a better way to put it is that in this > case I don’t think there’s a vast hard-money conspiracy; it’s a bad > idea bubbling up among many people. > > Now, none of those people are the sorts who are likely to find > themselves, or anyone they know, among the long-term unemployed. So > class is certainly a factor. But I find myself in conversations with > people I don’t think have a deep urge to inflict pain and/or safeguard > the rentier class who nonetheless ask, “But how long can we keep > interest rates low? Won’t bad things happen?” > > Which is not to say that this position makes any sense. What it does > reflect, instead, is the pervasive bias toward believing that imposing > suffering is good policy. I wrote about this bias a little while back, > citing Keynes, who similarly noted the strange collection of motives > behind the punishment mentality; yes, one motive was this: > > That it could explain much social injustice and apparent cruelty > as an inevitable incident in the scheme of progress, and the attempt > to change such things as likely on the whole to do more harm than > good, commended it to authority. > > But it’s not just simple class interest — which is why arguing with > the ideas can make a difference. > > > > > -raghu. > _______________________________________________ > pen-l mailing list > [email protected] > https://lists.csuchico.edu/mailman/listinfo/pen-l > -- Jim Devine "Those who take the most from the table Teach contentment. Those for whom the taxes are destined Demand sacrifice. Those who eat their fill speak to the hungry of wonderful times to come. Those who lead the country into the abyss Call ruling too difficult For ordinary folk." – Bertolt Brecht. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
