I found the following quote from a 1991 paper by Harvard professor Greg Mankiw interesting:
"At any point in time, policymakers with discretion are tempted to inflate in order to reduce unemployment. Economic actors, however, come to understand this temptation and adjust their expectations of inflation accordingly. Higher expected inflation in turn causes the short-run tradeoff between inflation and unemployment to deteriorate. In the end, discretionary policy yields higher inflation without lower unemployment."
The counterargument is that the economy is now stuck in some sort of liquidity trap with rates at zero. Thus, the calculus changes.
Still, it did get me thinking. Look, I know correlation is not causation. But, in the literature that I have endeavoured to read recently, there is a recurring theme where you see easy money precipitate large expansions of credit and a boom. The boom proves itself unsustainable (for whatever reason, but you might guess) and then comes the bust. So, without delving into any discussion of where interest rates will go and when, isn't it at least worth a conversation about whether the most popular solutions discussed today, that seem to incorporate both the worst of the quote above and the sequence I briefly touched on, could put us on a path to repeating ourselves. In a bad way.
