In his last blog post, Krugman is astounded that there are actually economists applauding the Fed’s recent announcement that it will exit its bond-buying sooner than previously thought–i.e. that it will “taper” QE. Speaking of the case that these pro-tapering economists make, Krugman writes:
One of the odd things about the people arguing that we must raise interest rates to head off bubbles — Raghuram Rajan, Martin Feldstein, the BIS, and so on — is the near-universal assertion among this group that just a little rate increase can’t do any real harm. (Just a thin little mint). After all, rates are so low!
As I’ve argued, this is a novel economic principle; where else do we argue that demand curves (in this case the demand for investment) are vertical at low prices? [Bold added.]
Actually, it’s not novel at all. It’s just like Krugman arguing that an increase in the minimum wage wouldn’t boost unemployment–which means that demand curves for labor are vertical at low wages. Your rhetorical question has been answered, Dr. Krugman!
Less sarcastically: Where is this “near-universal” assertion that an increase in interest rates won’t hurt the economy? In his recent pro-taper op ed, for example, Feldstein writes: “The higher interest rates that followed the Fed’s announced plans for tapering its bond-buying will further weaken GDP and employment.”
I also skimmed the BIS statement (which Krugman had linked in an earlier, incredulous, post) and saw no example of this “near-universal” assertion.
I’m not denying somebody said it, but I’d like to see it to evaluate it.