During the past years of post-crisis malaise I...
During the past years of post-crisis malaise I have often read about the “zero lower bound” (here is a very amibitious example). The zero lower bound is a well-known compositum from mainstream economics to describe the limits of inflation targeting as resulting from the fact that it is practically rather difficult to impose negative interest rates, even if such negative interest rates would be economically beneficial. Aside from the macroeconomic issues as such, I have always found that the zero lower bound nicely exemplifies the difference between “theory” and “paradigm” in economics.
Starting from theory, understood as the concise verbal or formal depiction of some key mechanisms and corresponding conditions, we find that the differences between the neo-Keynesian parts of the mainstream and more post-Keynesian approaches are one of degree - moving from one to the other often requires only a slight modification of the assumptions used (see here for a more detailed treatment). However, from a paradigmatic perspective a sheer gulf seems to emerge.
While mainstream economists’ are talking about the ‘zero lower bound’ as a kind of technical restriction emerging from some exogenous formal constraint, a more ‘heterodox’ account of the same phenomenon would probably include some reference to financialization and the increasing importance of ‘financial speculation’ relative to ‘real investment’. Hence, although many heterodox economists would submit to the practical argument that negative interest rates would increase the relative attractiveness of ‘real investments’, they would tend to frame the underlying trends in a much more different way - e.g. by focusing on Minsky or Kalecki to provide some deeper reasons for currently observed developments.
In my experience, it is exactly this latter tendency that often irritates mainstream economists, even in cases as the zero lower bound, where some kind of constructive agreement is not all that difficult to reach.
Having said that, I hope you will enjoy the rest of this issue of the Heterodox Economics Newsletter!
All the best,
Jakob