Liveblogging World War II: August 4, 1945: Operation "Centerboard I"
Hoisted from the Archives from Ten Years Ago: Feeling Bad About Chet Compensation Levels

Comment of the Day: Robert Waldmann: Is "Secular Stagnation" a Monetary-Financial Problem or a Fundamental-Technological Problem?: "We have trouble understanding our PhD supervisor...

...I don't see how there can be no attractive investment opportunities if the safe real interest rate is -10% per year (how about investing in a pile of commodities). This means I don't see why secular stagnation can't be eliminated by a high enough inflation rate and inflation target.[1]

I note that if excessive saving is the problem,then there are very simple partial solutions -- the tax code was designed encourage saving -- not allowing new IRAs should simplify the code (eventually) and help the problem.

I see two very different risky returns -- the return on equities and the return on corporate bonds. I also think that a diversified portfolio of poorly rated corporate bonds has stochastically dominated treasuries (including data from the great depression and the great recession but assuming that recovery ratios are as estimated in the literature). The required intermediary is an open ended mutual fund -- not one of the financial intermediaries which it is hard to trust (or which are not trusted).

A big problem for the hypothesis that the problem is monetary/financial is that non-financial corporations are sitting on huge piles of liquid financial assets. Their cost of capital is the low return on these assets not their high dividend yields. Also their investment is what one would expect given GDP and the safe real interest rate (which don't, as far as I can tell from ultra crude data analysis, have all that much to do with non residential fixed capital investment).

The financial market which might be behaving oddly is the market for home mortgages. I find it hard to believe that it is blocked even thought the 30 year mortgage-Treasury bond interest differential is ordinary (what would cause ultra-tight lending standards but not cause an unusually high differential?).

A flaky appendix to my comment moved down because it will destroy my credibility follows.

[1] I think Summers's logic must be that a 10% inflation target is obviously politically impossible. He might also think that it will lead to high costs of some sort, although I don't know why he might think that (I just note that everyone seems to agree that 10% inflation would be a very bad thing even if no one presents a model in which this is true or notes a case in which double digit inflation wasn't fought with a deliberate recession and yet lead to high costs -- I consider the case of Turkey to be evidence that the real costs of double digit inflation are low). In any case, a markedly higher inflation target is politically impossible and even hinting that it might work is political suicide.

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