Thread by @rohangrey

Interest rate policy is:

- a blunt tool with lots of negative side effects
- by definition not targeted to the actual source of inflation
- potentially counterproductive due to contradictory effects of income channel vs price channel
- usually considered to exclusion of all else

https://twitter.com/jasonfurman/status/1380658880414416896

New Keynesians have for years relied on interest rate adjustments to singlehandedly manage inflation outside of the ZLB/ELB, as Jason's own thread asserted.

What's the point in acknowledging it's shortcomings if you're just going to default back to knee-jerk reliance on it?

It's like someone looking for their keys a mile from where they lost them because that's where the light is, someone points out it's not where they lost them, and they say 'I agree, my search approach has shortcomings but I'm still gonna search here first".

Why? What the hell?!

As @MonnetEric's book Controlling Credit shows, this interest rate-uber-alles paradigm we've been living in for a generation wasnt natural or inevitable. It was an Anglocentric worldview imposed on the rest of the world that had previously experimented with a much wider range of

Tools and approaches to modulating and regulating private credit and investment, and achieving and sustaining full employment and price stability more broadly. We are now finally - thankfully - abandoning many of the other harmful Shibboleths that paradigm introduced into our

Macroeconomic discourse, many over the deep-seated objections of the Furmans of the world (see, eg, PAYGO). It's time to bury interest rate supremacy with the rest of them and embrace a better, richer, and more nuanced approach to macroeconomic and monetary policy implementation.

Lastly, a brief word on Volcker. I've already said a fair bit on his harmful legacy elsewhere:

thenation.com/article/archiv…

But it's important to be clear what he symbolizes in this debate and what lessons we should draw.

The famous Volcker shock is often pointed to as proof that

With enough "resolve", sufficiently high interest rates can always eventually subdue inflation, thus an interest rate centric stabilization policy is sound, at least on the taming inflation side. Whenever someone suggests that interest rates may not be omnipotent, inevitably

Someone will respond by pointing to Volcker as if it's a huge gotcha.

But even putting aside the considerable evidence that the inflation of the era was already being addressed to a significant degree by other reforms by the time he acted, notably the dereg of natural gas, its

Important to be very clear that Volcker's actions had an effect because they raised rates to such a level as to be functionally catastrophic. This wasn't a matter of increasing the FFR by a few 0.25% increments. This was double digit rates, which caused incredible, lasting harm

to the American economy, the labor movement, and the entire global south. To rely on this example as proof interest rates not only work in the way NK theory claims, but work as a tool of first resort even at the level of incremental increases, is frankly indefensible.

One way

To deal with weeds in your garden is to bomb your house. Thatll get rid of the weeds for sure. But only a maniac would point to the experience of Dresden as proof that gardening-by-mortar is a good idea. Yet that's the logic of people who use Volcker to justify IR supremacy.

So we're back again to the same question I asked above: if Jason agrees that interest rate adjustments have problems, why is he so adamant that its the best first way to respond to inflation before he's even given information about what the source of the inflation is? How is

That a sound policy framework? How is that taking inflation and it's causes seriously?

My mother, bless her heart, whenever I was feeling I'll as a kid would tell me to take a vitamin c tablet, as though it was a magic cure all. She wasnt a doctor, so I cut her some slack. But

Jason is literally one of the premiere economists in the world, at least on paper. What's his excuse for uncritically parroting this conventional wisdom, inherited from long discredited models and failing paradigms, even as we know there are better/more targeted alternatives?

It's easy to make snarky comments about MMT's positive and normative dimensions from the comfort of a Harvard professorship, but I've never come across any group that parrots the policy prescriptions of their mentors as uncritically as New Keynesians. I hope the rest of us dont

Have to suffer the consequences of their intellectual failures for yet another decade, we've done that enough already and simply can't afford to do it any more.