Wonkbook: What we need to do to get out of this economic malaise -- by Larry Summers

By Lawrence H. Summers John Williams has written the most thoughtful piece on monetary policy that has come out of the Fed in a long time.  He recognizes more explicitly than others that the neutral interest rate is now very low and quite likely will remain very low for a long time to come. As …   The latest economic and domestic policy from Wonkblog   . (Photo by Justin Sullivan/Getty Images) By Lawrence H. Summers John Williams has written the most thoughtful piece on monetary policy that has come out of the Fed in a long time.  He recognizes more explicitly than others that the neutral interest rate is now very low and quite likely will remain very low for a long time to come. As he recognizes, this the essence of the secular stagnation concern that I and others have been expressing for the last three years. I now believe that it just as reasonable to suppose that neutral rates will fall further as it is to suppose they will revert toward historically normal levels. First, there is a kind of hysteresis in rates in which a lower interest rate today tends to lower the neutral rate in the future. To the extent that low rates stimulate spending by pulling forward investment, low rates today reduce neutral rates tomorrow by moving investment forward. Second, major structural factors like rising inequality, slowing labor force growth, lower capital goods prices, slowing productivity growth  and more capital outflows from developing countries appear to represent continuing trends. Third, there is the prospect that the growing expectation that rates will be low for a long time decreases the spending of target savers and interferes with financial intermediation. ADVERTISEMENT   Williams rightly, if rather tentatively, draws the conclusions that a chronically very low neutral rate has important policy implications. Read the rest on Wonkblog.   Chart of the day Middle-class jobs are coming back. Ylan Q. Mui has more. Top policy tweets "Justice Department says it will end use of private prisons https://t.co/xZ20mBzeAg" -- @crampell "A look at the most important choices a President Clinton would have to make in putting together her economic team. https://t.co/IkCLlyg6v8" -- @jeffspross "Jacob Hacker, the father of the public option, explains why Obamacare's troubles show why the idea is necessary https://t.co/GAG96Aq6qz" -- @ezraklein Most Recent Posts from Wonkblog Why a computer program that judges rely on around the country was accused of racism The future of predicting who will commit crime is here. Are we ready? By Max Ehrenfreund  •  Read more »   Why these die-hard Democrats are rooting for Trump These voters may be turning red, defying their national leaders. By Jacob Bogage  •  Read more »   Finally, some good news for blue-collar workers It's all about the jobs By Ylan Q. Mui  •  Read more »   Larry Summers: What we need to do to get out of this economic malaise Larry Summers on what we need to do to get out of the economic malaise. By Lawrence H. Summers  •  Read more »   ADVERTISEMENT   Recommended for you   Federal Insider Federal news and policy update, in your inbox daily. Sign Up »         Share Wonkbook:       Twitter      Facebook Trouble reading? Click here to view in your browser. You received this email because you signed up for a Wonkblog newsletter. For additional free newsletters or to manage your newsletters, click here. We respect your privacy. If you believe that this email has been sent to you in error or you no longer wish to receive email from The Washington Post, click here. Contact us for help. ©2016 The Washington Post, 1301 K St NW, Washington DC 20071