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Ken Rogoff Decides This Time Is Different


Rogoff was previously chief economist at the International Monetary Fund and now teaches at Harvard. He is a Republican.

Democrats criticized his 1985 paper recommending that the Fed keep inflation low and not try to influence employment.

They also didn’t like it when he told Harvard Magazine, after the Crash of 2008: “We borrowed too much, we screwed up, so we’re going to fix it by borrowing more.”

They really didn’t like it when he published This Time Is Different, a book which seemed to argue that too much government deficit spending can be dangerous for an economy.

But Keynesian cheerleaders for our present (Bush and Obama) economic policies of print (money), borrow, and spend didn’t really have to worry about Rogoff. Not too long ago, he announced that what the Fed really needed to do was print so much money that consumer price inflation would rise sharply, while continuing to cap interest rates. That would create negative real interest rates, which would be equivalent to paying people to borrow. At the time, Rogoff seemed to be talking about creating as much as 6% consumer price inflation while keeping short term interest rates near zero. In this article, he tempers this to 4%.

Think about this for a moment. If you pay people to borrow, not just give money away for free, but actually pay them to borrow, what quality of loans would you expect? Would people be expected to use this money to make productive investments and otherwise use it wisely? Or would they just speculate with it or waste it and figure that the government will bail them out if anything goes wrong?

Would the bond market even let the Fed get away with trying this crazy advice? Could the Fed be able to keep an absolute lid on interest rates after it acknowledged the plan to create so much inflation? If it did “succeed,” how much new money would have to be created to continue to hold down rates?

Let’s also keep in mind who benefits from consumer price inflation and who suffers from it. It is obvious that the middle class suffers. Studies confirm that the poor suffer the most. They are the least able to get their incomes up as prices head up. None of them will get the Fed’s newly created money. Meanwhile rich people, especially people on Wall St., understand what is happening and how to profit from being paid to borrow.


Hunter Lewis

Hunter Lewis is author of twelve books, including The Secular Saints: And Why Morals Are Not Just Subjective, Economics in Three Lessons & One Hundred Economic Laws, Where Keynes Went Wrong, and Crony Capitalism in America 2008-2012, and has contributed to the New York Times, the Washington Post, the Times of London, The Atlantic and many other magazines and web sites including Mises.org and LewRockwell.com. Lewis is also co-founder of Against Crony Capitalism, co-founder and CEO of investment firm Hunter Lewis LLC, and co-founder and former CEO of global investment firm  Cambridge Associates LLC. He has served on boards and committees of fifteen not-for-profit organizations, including environmental, teaching, research, and cultural organizations, as well as the World Bank.

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