Could higher interest rates help the economy?

We live in an age when central bankers grace magazine covers like pop stars. But what if they don’t actually know what they are doing? In the United States, at least, quantitative easing and low short-term interest rates may have done as much harm as good.

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Sorry James Livingston, you need investment to create wealth

In yesterday’s New York Times, Rutgers historian James Livingston argued that private investment is not necessary to create wealth:

AS an economic historian who has been studying American capitalism for 35 years, I’m going to let you in on the best-kept secret of the last century: private investment — that is, using business profits to increase productivity and output — doesn’t actually drive economic growth. Consumer debt and government spending do. Private investment isn’t even necessary to promote growth.

This is not merely wrong—it is staggeringly, destructively wrong.

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Does a sophisticated modern society need too-big-to-fail banks?


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The lessons of the baby-sitting co-op reconsidered

During the depths of the Asian Financial Crisis, Professor Paul Krugman wrote an essay for Slate where he argued that central banks can prevent recessions by manipulating interest rates. To make his point, the professor used a real-life example of a baby-sitting cooperative from the 1970s. It is well worth reading, particularly the second footnote at the bottom.

The original article on which Krugman’s piece was based is even more interesting. The authors came to a very different conclusion from the professor, however, which has significant implications for today’s debates on monetary policy and the economy.

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Dick Cheney, Modern Monetary Theorist, was mostly right

In 2002, Vice-President Dick Cheney told the Bush Administration’s economic team that “deficits don’t matter.” When the incident became public a few years later, he was lampooned in the press as an innumerate Neanderthal. Turns out, oddly enough, that he was mostly right and his persecutors were mostly wrong. Read more of this post