Morning Must-Read: Paul Krugman: Knutty Asset Prices

Paul Krugman: Knutty Asset Prices: “Although I hear the phrase ‘artificially low’ all the time…

…I don’t think many people who use it have thought through what they mean. What would a non-artificial interest rate be?… [Knut] Wicksell… [said] an unnatural [interest] rate… would be… an interest… [at which] the economy overheats… [with] accelerating inflation. But that hasn’t been happening…. So what are the people complaining about artificially low rates talking about?… They are low by historical standards–but there are enough changes… from deleveraging to demography that this isn’t a convincing argument…. Once you accept the possibility that rates belong where they are, or even a bit lower, to correspond to the Wicksellian natural rate, you also conclude that asset prices might make sense; and once you concede that asset prices might make sense, you lose the supposed evidence that rates are all wrong…. Where is the wild exuberance that we associate with dangerous bubbles? I don’t see popular TV shows about house-flipping, and CNBC viewership is plumbing new lows…