Jim,
When you refer to "a variety of different inflation-adjusted interest rates, which differ in terms of risk, illiquidity, the term to maturity, and tax treatment", that is exactly what I mean. Because: who knows what the hell that means? (previously I had left the problem of netting out tax costs out of consideration). The "real rate of interest" (just like NIPA gross profit beloved of Marxist economists) turns out to be a theoretical relationship, a statistical artifact, not a directly observable rate of interest applying to anything real. In my view, this is a problem with a lot of economics: actual costs and ideal prices are conflated with each other. http://en.wikipedia.org/wiki/Real_prices_and_ideal_prices The next problem is: if the "real rate of interest" is just a statistical artifact derived from some composite of observed interest rates, how then can it influence real economic behavior, other than perhaps by influencing market expectations? And, if this real interest rate is near-zero, how can it influence anything much? I am sure that the movement of interest rates does affect investment activity, but those interest rates concern the actual credit costs incurred, not the "real interest rate" which has very little reality. So, I think we should distinguish between "real economics" which is based on what actually happens, and "vulgar economics" which is based on imaginary, stylized data and imaginary, stylized concepts. Jurriaan
_______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
