Tuesday, November 19, 2013

Blinded by the Light

Tyler Cowen has an interesting and bizarre comment about real negative interest rates, due, apparently, to Arnold Kling:

Summers wants to claim that full employment has been achieved in recent years because of asset bubbles. However, in a world of negative real interest rates, there is no such thing as an asset bubble. Real assets have infinite value in such a world. - See more at:

http://marginalrevolution.com/marginalrevolution/2013/11/arnold-kling-on-secular-stagnation.html#sthash.Hnas1pMx.dpuf

At first (and 3rd or higher glance) this is nuts, but I think I know what he means. Real negative interest rates (if you expected them to be insensitive to borrowing) would mean you get paid to borrow money and hence could buy anything for free. Or that's the way it would work in efficient market topia.