For some unknown reason, the New York Times editors chose to print on the front page of my delivered Times a confusing "news analysis" by its business/economics writer, Floyd Norris. Norris is surprised, shocked that interest rates are at record low levels when "financial circles" he apparently listens to predicted just the opposite.
As 2010 began, there was nearly unanimous agreement in financial circles on at least one thing: Interest rates were sure to rise during the year.
Quite to the contrary. As Labor Day approaches, interest rates have collapsed, plunging along with economic optimism.
That turn of events, which has shocked savers and stunned investors, appears to indicate that financial markets’ worries are turning in a very different direction from those of many governments.
. . .
Now, far from showing a reluctance to finance the American government, investors are seeking safety and evidently believe American government debt is the safest possible investment. They have rushed to send money to the Treasury, thereby reducing borrowing costs for the government.
Lions and tigers and bears, Oh My! What could this mean? Norris just can’t seem to sort it out.
He might start by reading the Times economic writers, some of whom have figured out, as the Times columnist, a Nobel economist, and friends have been explaining for more than a year, that rising interest rates and inflation were never going to be a problem as long as the economy languished in a near depression. They knew the government’s fiscal and monetary policies remained woefully inadequate to stimulate aggregate demand enough in a nation that had just lost $12-14 trillion in housing and stocks/pensions wealth.
Under those conditions, an even half-sentient Federal Reserve — about what we have today — would be unlikely to raise interest rates nor need to worry about inflation. So for more than a year, Paul Krugman, Brad DeLong and others who understood this have been alternating between educating us (thank you!) and ridiculing those deficit hysterics who fear-mongered about exploding inflation and rising interest rates when the economic recovery was timid, jobless and, so far, virtually groundless. They’ve been proven right.
What this hardly "news" to those paying attention means is that everyone who has been hysterical about near-term deficits, loading "unsustainable debt" on our grandchildren and interest payments leading to sovereign default has been 100 percent dead wrong, and listening to them, even without the "deficit [catfood] commission" has made matters worse.
There’s no surprise that the same people who were wrong about the market’s self-correcting ideology and unable to see the recession’s causes nor the need to deflect/mitigate them have proved incapable of fashioning effective remedies. They were wrong about the theory and now Norris notes they’re wrong on the facts and their predictions. No kidding. They were wrong. Just say it straight out, Mr. Norris, and you’d have a coherent column.
Unfortunately, Norris gets lost on a detour of Greece and Germany, neither of whose circumstances are similar to the US economy, though he does concede this:
The problems that confronted Greece could not precisely replicate themselves in either the United States or Britain. Both borrow in their own currencies, which they could print if others were reluctant to make loans.
"Not precisely?" Uh, if you have to mention Greece, how about explaining why Greece is "not even remotely" applicable to the US, so those who draw parallels are charlatans.
And what exactly is the point of suggesting the end of Keynes, when the facts Norris is surprised by tell us the Keynesians are correct?
Norris recognizes that, gosh, with interest rates so low, this is a really good time for smart businesses to be borrowing and investing. But he doesn’t explain that strategy makes sense only if we can stimulate demand for their products/services or our trading partners are not similarly crippled by inappropriate austerity measures.
Worse, Norris doesn’t draw the obvious conclusion for government: with government able to pay record low interest rates to US bond holders, this may be the most propitious time in his or my lifetimes for the US to spend and invest in American jobs, public infrastructure and institutions. And that’s especially true since business investment remains risky as long as aggregate demand is low.
The nation’s economic conditions cry out for more government spending and public investment now. The cost is as low as it may ever be, the need is obvious and virtually unlimited, and the dividends to our future would be immense. And if that’s not enough, the correct policy just happens to be the best politics for the governing party.
But instead of drawing the obvious conclusion that Congress’ deficit hysteria and fear of spending are not only belied by the facts but grossly irresponsible, Norris can quote only Republican Senator Lamar Alexander:
Deficit hawks are leaning forward in the United States as well. “Many Americans and most senators feel that the level of the federal debt is at crisis levels,” Senator Lamar Alexander, a Tennessee Republican, said in a Senate debate last month, adding that the debt “threatens the security of our country.”
Uh, this is where Norris should give us a resounding "Wrong!" The federal debt is not at "crisis levels," and it doesn’t "threaten the security of the country," so if most senators believe that, they should be hounded out of office and sent to reeducation camps.
There are genuine threats to America’s economic present and future, starting with the failure to make public investments in its future when it makes sense to do so. That failure can only leave a crumbling nation and impoverished, not to mention uncompetitive, people. The only surprise here is that what is so obvious to the rest of us remains a surprise to much of America’s elite media and political leadership.