Sunday, 25 November 2018
Permanent zero interest rates.
The idea that the central bank base rate should be kept permanently at zero is very much an MMT idea. At least the two co-founders of MMT, Warren Mosler and Bill Mitchell both advocated the idea. Mosler’s exposition of the idea (co-authored by Matthew Forstater) is in a paper entitled “The Natural Rate of Interest is Zero”.
Bill Mitchell’s exposition is in an article entitled “There is no need to issue public debt”.
The idea that interest rates should be kept permanently at zero comes to the same thing as saying that neither government nor central bank should borrow anything: i.e. the only liability they should issue should be zero interest yielding base money.
I found Mosler and Forstater’s paper unnecessarily complicated – or perhaps it’s just me being stupid. Mitchell’s is more common sense and contains numerous good points. Mitchell criticises some of the defective arguments put for government borrowing, but he does not deal with all of those defective arguments.
Milton Friedman also advocated a zero government borrowing regime in a paper entitled “A monetary and fiscal framework for economic stability” (American economic review). But he does not go into much detail.
In short, I think the above three articles leave room for a bit of improvement, so I’ve just turned out my own attempt to argue for a permanent zero interest rate. That’s in a paper entitled “The arguments for a permanent zero interest rate.”