Thread by @rohangrey

@paulkrugman doubling down on a willful misunderstanding of MMT's critique of the neutral rate of interest. It's not, as he asserts, that the neutral rate is merely "hard to determine, or ... unstable". It's that there is no guarantee that there exists a particular rate 1/x

consistent with full employment at any point in time. Interest rate adjustments have potentially contradictory effects on different aspects of the economy and there's no guarantee that if reducing rates by 1% is stimulatory today, reducing rates by 5% today or tomorrow is also

stimulatory. It depends! Under some conditions, some effects outweigh others, and overall some effects may only have a capped impact on broader macroeconomic conditions. I describe this argument in more detail here:

binzagr-institute.org/working-paper-…

Phil Pilkington also goes into it in detail here:

levyinstitute.org/pubs/wp_817.pdf

But the more important point is that Paul is playing coy - he knows there's a longstanding literature questioning natural/neutral rate theories that @StephanieKelton is drawing on. Being "puzzled" is a

rhetorical tactic he uses to keep the conversation on his terms. If he actually wanted to understand her point he could have asked her or the hundreds of MMTers who brought this stuff up to him over the years, or read any Post-Keynesian literature on the topic.

But he won't, because the goal here isn't understanding it's turf defense. It always has been and always will be.

If we're playing yes or no questions, here's one for @paulkrugman: do you believe that there exists a particular interest rate capable of generating full employment at any moment if the ZLB did not exist & NIRP was possible? Are interest rates omnipotent AD management tools? b/c

in the start of the piece Paul makes the assumption that "the central bank can set the interest rate so as to achieve full employment", a claim he's repeated elsewhere also equally confidently. But then he shifts to claiming that "all we need is that the central bank be able to

move rates, and that these rates affect overall spending". But this is a much weaker claim! Interest rates could *affect* overall spending without ever ensuring or feasibility hitting 'full employment' in the way fiscal policy can.

Calvinball indeed.

nytimes.com/2019/02/25/opi…