Questions for the medium run…

Take the mechanics of demand stabilization and management off the table. Move, in our imagination at least, into a world in which short-term safe nominal interest rates rarely if ever hit the zero nominal bound. In that world, as a result, the full employment and price stability stabilization-policy mission could be left to central banks and monetary policy. Furthermore, confine our thinking to the North Atlantic, possibly plus Japan.

It seems to me then that there are four big remaining questions:

1. Can, in a political-economy sense, central banks be trusted with this mission? Are they not captured, to too great an extent, by the commercial-banking sector that, myopically, favors higher nominal interest rates to directly improve bank cash flows and indirectly dampen inflation and so redistribute wealth to nominal creditors–like banks?

2. What is the proper size of the twenty-first century public sector?

3. What is the proper size of the public debt for (a) countries that do possess exorbitant privilege because they do issue reserve currencies, and (b) countries that do not?

4. What are the real risks associated with the public debt in the context of historically-low present and anticipated future interest rates?

I gave my preliminary answers to (2), (3), and (4) here. But what about (1)? And what about others’ takes on my answers to (2), (3), and (4)?

I think that these are among the most important questions for macroeconomists to be grappling with right now, and yet I am disappointed to see relatively little serious work on them. Am I missing active literatures because I am not looking in the right places?

Does anyone have any bright ideas here?