Morning Must-Read: Paul Krugman: Money in a Time of Zero Interest Rates

Paul Krugman: Money in a Time of Zero: “People who spend too much time…

…[saying] monetary policy doesn’t matter…. Contractionary monetary policy is working just fine; all the central banks that mistakenly decided that it was time to raise rates… [are now] realizing their error and reversing course. But what about the fact that vast increases in the monetary base have failed to do much to the economy?… The irrelevance of the monetary base is… something that happens when you’re in a liquidity trap…. I get annoyed both by people who declare that nobody could have predicted the failure of balance-sheet expansion to cause inflation, and by those who claim that conventional economists like me just don’t understand that money is endogenous. Guys, I laid it all out 16 years ago. And as for the idea that the absence of a clear definition of money, plus the fact that most money is created by financial institutions, means that central banks don’t matter, James Tobin dealt with all that more than fifty years ago…. If you think something deeply disturbing from an analytical perspective has taken place… you basically weren’t paying attention. If you read your Tobin… [and what] Woodford and I had to say about the liquidity trap, you expected to see exactly what we’re seeing.”