Millennial Macro

I wanted to expand on the following which derives from the the last blog entry,  The ZLB vs the Natural Rate: US Monetary Policy goes Global , "A more compelling argument can be made that an economy suffering a secular stagnation that arises from  perpetually depressed private investment must rely on a greater use of fiscal policy.  In such a state of the world, fiscal policy becomes imperative in generating enough aggregate investment and demand to ensure that all available resources, including labor, are put to productive use rather than imprudently sitting idle.  This is particularly the case if existing monetary policy tools fail to gain traction in reducing slack in the economy.  Unfortunately due to current political realities and ideologies, a more expansionary role for fiscal policy is often dismissed as a political non-starter.   If these assumptions prove to be true, then the decision to accept secular stagnation is a political choice ...

From the Economist: "Over a century ago Knut Wicksell, a Swedish economist, drew the distinction between the financial rate of interest that borrowers actually pay and the natural rate of interest that was determined by the return on capital. If the financial rate is below the natural rate, businesses can reap unlimited profits by borrowing as much as they can and ploughing it into high-returning projects. Eventually, though, all that additional spending pushes up prices, money and credit, and eventually, financial interest rates.