Live from Evans Hall: Musing on One's Intellectual Duties: Apropos of David Romer's teaching Gabriel Chodorow-Reich and other things this morning...
Those who state that they are worried about zero interest-rate policy and financial stability are not worried about the excessive new risky lending. New risky lending is far from excessive--and boosting it is, in fact, one of the principal aims of low interest rate policy. We want there to be more of.
What they might be worried about is a model in which there are two groups of investors: those who can assess risks and those who cannot. The second group are easily phished. And zero interest-rate policy induces them to "reach for yield". The complaint is not that there is too much new risky lending, but that the wrong people are undertaking risky lending, and financial instability may result when the tide goes out and they see how phoolish they have been.
The problem with the previous "what they might be worried about..." paragraph is that those who claim to be worried about zero interest-rate policy and financial stability do not make this "phishing for phools" argument, and do not present any evidence that zero interest rate policy materially adds to the problem of phools who are easily phished.
As a matter of dialogue and debate and the advancement of knowledge, how much work should I be doing not just to acknowledge and express the strongest wrong arguments I think are being made, but to go one step further and develop even stronger arguments then are currently being made if those stronger arguments are along lines that I think of as fundamentally wrong?