Executive Summary
This paper seeks to tackle two forms of idolatry surrounding interest rates.
First is the idolatry of the “equilibrium/natural/neutral” rate of interest displayed by central bankers around the world. This is a make-believe concept with no foundation in the way our financial world really works. It is scary to think that this is the topic that central bankers are debating.
The second idolatry is the modern-day belief in the world’s greatest con: that monetary policy matters. There is precious little evidence that monetary policy matters for the major components of demand (investment and consumption look pretty immune to the shifts in interest rates over time). Perhaps it is time to recall that we have another tool in our economic kit: fiscal policy. This is a political pariah of a policy, but offers a potential way out of the low growth we find ourselves facing.
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