The Whole World Is a Nail

By Ted Craig August 10, 2018

A bad job of raising interest rates can tip the economy into recession. I don’t know that there is a good way to handle this. It’s probably more a matter of the least bad way. There are many legitimate reasons to raise interest rates and while “We need to be able to lower them in a downturn” is one them, it’s not a great reason.

The problem is that all we have is interest rates. Inflation spikes? Raise interest rates. Deflation? Lower them to zero.

There are, however, alternatives to both. Inflation can also be fought off with higher tax rates. Deflation is actually better treated with increased spending. The problem is this requires politicians to take actions many people don’t like. So the only tool we have is the hammer of interest rates.

Last modified on Wednesday, 15 August 2018 15:16

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