There is a doctrine among mainstream economists holding that: (1) government deficits push interest rates higher and (2) rising interest rates crowd out private investment...
Paul Krugman is a believer in this doctrine. I’m not ...
(I skipped over that intro in mine of the 11th.)
Brad DeLong, grasping reality on the 7th of March, opened
thinking about this by Łukasz Rachel and Lawrence H. Summers this week: On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation.There it is! "Increased government debts" are deficits, so DeLong is saying deficits have pushed interest rates perhaps 2 percentage points higher. An example of what Kelton was saying.
It says an awful lot of true things. The average "neutral" 10-year safe real interest rate consistent with full employment in the Global North does look like it has fallen from 4% per year in the 1990s to -0.5% per year today... During this period of decline, increased government debts have put perhaps 2%-points of upward pressure on the neutral rate: the actual decline has been 6.5%-points.
No biggie. I just like finding evidence that supports a generalization.
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