It has been a while since I wrote about sadomonetarism -- that psychological condition that afflicts otherwise smart economists, causing them to demand higher interest rates under any and all circumstances 1/https://krugman.blogs.nytimes.com/2014/07/01/stability-or-sadomonetarism/ …
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Well, the syndrome hasn't gone away -- and now there's a new chapter: we must raise rates now so we can cut them later 3/https://www.wsj.com/articles/save-low-interest-for-a-rainy-day-1532642350 …
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Here's the money, er, monetary graf. It's awesomely wrong-headed 4/pic.twitter.com/W0DzyJs9ju
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There are a couple of ways to explain what's so foolish here. Maybe the best is to say that what will matter in the next slump is how low the Fed can bring the REAL interest rate. If you want to bring that lower bound down, you want to enter the slump with higher inflation 5/
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And the way to get higher inflation over the next couple of years is to let the economy boom -- that is, NOT to raise rates too fast. There is absolutely no sense in which raising rates keeps your powder dry for the next slump 6/
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This should be obvious to anyone who knows basic macroeconomics. But sadomonetarism has a proven ability to destroy smart people's ability to think clearly 7/
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End of conversation
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A classic "conventionalist twist" by pseudoscientists in Popper's language.
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My "favourite" is the neo-Fisherian argument that higher interest rates will increase inflation and thereby stimulate the economy.
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