Friday, January 13, 2017

Rogoff has become wacko

The obsession with the zero lower bound is encouraging all kinds of wacko ideas. People are saying that at the ZLB, productivity increases are bad (Eggertsson/Krugman/Summers), protectionism is good (Eichngreen), price flexibility is bad, and so on.But there is an emerging literature that says economists are taking the zero lower bound too literally. In fact, getting negative rates is not that hard. So before you take seriously these, let’s say, very creative ideas, it would be simpler to think about getting rid of the zero bound.There are lots of ways to do it. I talk about some in my book, but people already understood this back in the 1930s. There was Robert Eisler’s proposal to have banks accept cash deposits at a discount, for instance, which would have effectively created negative rates. If Keynes had read Eisler, he might have gone in a different direction. [2] It’s a very old idea — Kublai Khan did something similar. There will be pushback from the financial sector, of course, who think negative rates will be costly for them, but fundamentally it is not hard to do.
Rogoff is simply retreating to his simpler Magic Walrus world and he has Euler police watching each transaction to enforce the pricing menu.   Another example of economists assuming pricing works, then inventing magic.

They understand the concept of negative, fine, that is a start.  But the negative is a probability of having a negative outcome, it must be finite and positive, and innovative.  So, yes, in the no hedge sandbox, there will be currency banker losses and gains, that is the helicopter.

But putting a nutcase economist in charging of pricing with a police force is a war crime as we are witnessing in India.

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