Meanwhile, Fed officials are searching for the elusive—and I’d say ridiculous—r*, which is supposed to be the long-run “neutral” rate of interest. The notion that there is an invisible and unknowable interest rate that neither juices nor dampens economic activity is the kind of thing that only passes the laugh test in the world of theoclassical economics
Hmm.
First is how right Stephanie is to make this observation: there is, glaringly obviously, no such thing as r*, the existence of which is only known in a neoclassical economics textbook.
Doesn’t exist, eh?
We know – from the Emeritus Professor, no less – that “high” interest rates depress economic activity. This is why he says that interest rates have to be lowered. We also know that “low” interest rates stimulate the economy. Also stated by the Sage of Ely.
So, logically, there is an interest rate that is Goldilocks.
Being able to identify it, well, that’s a different matter. But the existence – wholly and exclusively derived from the the collected works of The Great Potato – is without doubt. And yet Spud denies it.
Is it just me that can’t access this site from the top level – i.e. timworstall.com?
Takes me to a default web page every time…
Try a different browser or clear your DNS caches. The site has been misbehaving for a few weeks as a result of a DNS misconfiguration that has now been sorted out. According to this, most DNS is now OK:
https://www.whatsmydns.net/#A/timworstall.com
So too much exists, and too little exists, but not the bit in the middle that joins them together. There’s a spectrum, but the ends aren’t connected. They float about like a binary star.
Mmm. Try that argument in some other spheres of life, such as “gender”, and see how you get on in Murphy’s world.
The site has been misbehaving for a few weeks as a result of a DNS misconfiguration that has now been sorted out.
Thanks, I’ll have a go… Has been working perfectly for me until two or three days ago…
In the context of what he’s written, sorry, I’d have to agree with him. Low interest rates will cause one set of things & high interest rates will cause a different set of things. So one can presume that there’s an interest rate will result in the optimum result across all things. But the idea that some pen pushing “economist” at the Fed can determine that interest rate or even the optimum across all things is with the birds. There’s too many variables, likely mostly indeterminate. Whatever he comes up with is likely to be wrong.
Isn’t this something the market should calculate?
We’ve had clever “economists”setting interest rates & look at the colossal FU they’ve made doing so. God help us if the Sage of Ely got involved.
Didn’t some bloke called Hayek have something to say about economists and ‘knowledge’?
Is anyone else having a problem accessing this blog at the moment? When I click on my bookmark I get an error message. I got here today by following a link from Julia’s blog to an older post and scrolling forward to today.
Perhaps he can’t grasp the existence of “r” because it’s a variable not a constant.
Didn’t he have much the same sort of problem the other week with the Laffer curve and why people can’t say what the exact number would be to always maximize tax revenue.
I can’t decide whether r* is a Cheshire cat, Schrodinger’s dog basket, a coin flip landing on its edge or one of those quantum thngies where the act of observing changes its nature.
Dynamic equilibrium, feedback loop: the optimum isn’t, and cannot be, fixed for all time but you can aim to constantly adjust with damping to keep near-enough to that notional optimum. Which is what a matrket does.
Like inflation, the actual rate of r* is different for each individual, never mind group, even less mind a whole nation. It not only possible but inevitable that any given rate will cause over-exuberance in one area but dismay in another. If there is a goldilocks rate on average it’s not very useful to know it and it’s a typical economist’s fiction to think it could matter. Like velocity of money, that thing that can’t be measured except by putting known values into the only formula where it is claimed to matter, knowable only in retrospect.
Stony @ 11.17, did similar and on one of the comments, Bloke in Spains’ suggested clearing your browser (Firefox in my case) temporary cache files and all is well in the world again….
If that means hanging all government economists, I agree Rhoda.
On the difficulty of getting this site to open correctly. Any idea why Opera will load pages whilst Firefox is reluctant to load the same pages? Would it be because I’m running Opera with Java turned off?
It is one of those ‘ black body spheres in space’ sort of thing.
If the market behaved perfectly then there’d be optimal inflation, growth, interest rates, tractor production etc etc.
But it doesn’t.
Economists suffer from the same problems as physicists and especially climate ‘scientists’. Models and ideals never work, because not only the goalposts, but also the pitch they are on keep moving.
Doesn’t mean it isn’t worth investigating, though.
Clearing my cache worked for me.
As for r*, you do have an existence proof. The problem is that there is also an existence proof that if you lay a knife edge up on the floor there is a flat spot on top.
But balancing on it is a different matter.
Adolff… I do believe there are economists with actual knowledge and “feeling” for their chosen trade.
You just don’t find them writing huffy blogs or teach at “Universities”.
They’re snapped up, presumably well paid, by anyone serious about Making Money.
Then again, the Elyan Potato isn’t an ecomomist, merely a dodgy bookkeeper, if that…
Spot on by Rhoda
Optimal R will be different in different places, different cultures, different sets of people. A region with lots of mining opportunities might want a different rate to a region with a green belt around it. People with 4 kids wanting to have 5 might want a different R to someone wanting to splash their excess on coke and negotiable virtue but can’t yet due to a sports injury so are presently saving.
To aggregate across 19 countries e.g. the Eurozone is going to be trouble
Spud has been talking about farmers:
https://thefarmingforum.co.uk/index.php?threads/we-are-not-fit-to-farm-so-better-farmers-are-needed.419530/
Strangely enough he doesn’t make many friends…….
Hahaha thanks Jim, oh how I chuckled. Those farmers don’t mince their words, I hope the Emeritus Potato has seen how his vital work is received
The Bank of England base rate was 5% for almost than 150 years in a row, so that’s supportive of there being a “natural”/”neutral” interest rate.
Those farmers don’t mince their words,
We can look forward to mass bannings then? From the Pol Pot of East Anglia.
“They should be driven from their land & put to work in the universities.” he shouted.
There must be a few farmers who live near Downham Market. It would be a tragedy if Spud’s address were somehow leaked to them.
One suspects the worthy men ‘o the land in Downham Market were privy to the information. Why he now lives
inin the vicinity of Ely.>”And yet Spud denies it.”
I think there’s a Python joke in there somewhere.
“Only the True Economist denies . . . “