Milton Friedman and Warren Mosler (founder of Modern Monetary Theory) advocated a system where government and central bank issue enough base money to keep the economy working at capacity but do not pay interest to those holding that money. I.e. they advocated a system where government does not borrow. And that amounts to a permanent zero interest rate policy.
Friedman did not produce very detailed reasons for that idea and I find Mosler’s reasons a bit convoluted and hard to follow. So I’ve written a paper setting out an argument for a permanent zero interest rate policy which is essentially very simple: it’s that none of the arguments for government borrowing stand inspection, thus there should be no such borrowing, and that (to repeat) equals a permanent zero interest rate set up.
Having said the argument is basically very simple, actually demolishing the large number of alleged reasons (or “lame excuses”) for government borrowing is not a simple matter: it requires a few thousand words.
The paper is 99% complete, and the draft as it stands at the moment is here. Comments are welcome. I’ll submit it to a journal – probably this week.
P.S. (9th June). Paper now submitted to a journal, though with significant changes to the version linked to above.
The paper got turned down by the journal. I’ve done an improved version. See here.
The basic ideas in the (hopefully) improved version are the same. There are a two or three extra references and two or three extra minor points. In contrast to those minor points, there is a relatively important extra point namely that I’ve reconciled the ideas in the paper with full reserve banking (section 15). More specifically, I’ve tried to show (very briefly) that the ideas in the paper are fully compatible with full reserve, or to put it more strongly, that the ideas in the paper and the ideas behind full reserve reinforce each other.