As always occurs in this sort of situation, you have monetary hawks telling us that interest rate cuts won’t do any good. These monetary hawks have been consistently wrong, wrong, wrong about monetary policy for the last 12 years. They’ve complained that policy is too easy and that it would lead to higher inflation, even as inflation has almost consistently undershot the Fed’s 2% inflation target.

Even worse, they seem to show no contrition, no interest in learning why they were wrong, and no interest in reading the analysis of those of us who have been consistently right. I don’t believe we should ignore those who we disagree with, but when I read their analyses and see stupidity like “rate cuts don’t cure a disease”, it makes me want to pull my hair out. Show me a single economist who claims that rate cuts cure disease, or even who claim rate cuts make supply-side problems go away.

That’s not to say that all is well in monetary dove-land. Tim Duy correctly calls out a tweet by Larry Summer:

Summers manages to make not one but two bonehead errors in one tweet. First, the fact the interest rate cuts don’t cure disease is completely irrelevant to everything, including the question of whether rates should be cut. Summer seems to think otherwise. (It’s about like saying cutting rates won’t cure my toothache. So what?)

Even worse, Summers seems to suggest that monetary stimulus uses up ammunition, whereas it actually creates ammunition. Indeed that’s why many economists favor raising the inflation target to 4%—precisely to give the Fed more “ammunition” (i.e. a higher equilibrium rate of interest.). Summers is making the basic error of confusing a cut in the policy rate (which adds to ammunition) with a cut in the equilibrium interest rate (which reduces ammunition.)

PS. Over at Econlog I discuss the recent “saving shock”.

PPS. I’m quoted in this recent article, as is Larry Summers.

HT: David Beckworth