The Stiglitz hypothesis

Today, persistent low interest rates encourage firms that do invest to use capital-intensive technologies, such as replacing low-skilled checkout clerks with machines. In this way, the Fed may still be contributing to a jobless recovery, when we finally do recover.

If you read these two sentences with sufficient brute literality, they may well be true.  And more generally I would admit, and indeed stress, that we are in an age of labor-saving innovation.  Still:

1. Fed policy is a minor factor behind that trend, and would be recognized as such by all empirical researchers in the area,

2. Never reason from an interest rate change (erect statue to Scott Sumner), and

3. A tighter monetary policy would be far worse for the labor market.  Furthermore weaker incentives for investment also would be worse for the labor market, although Stiglitz’s passage can be read as implying the opposite.

If you think Sumner-Avent-Yglesias-Soltas thought has taken over the world, Stiglitz shows a blindness to monetary options:

If we want recovery, there is no choice but to rely on fiscal policy.

Not “fiscal policy is better,” but rather “there is no choice.”  There is also no explanation.

The link is here.


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