An Unteachable Moment

krugman.blogs.nytimes.comIt is, as Antonio Fatas notes, almost seven years since the Fed cut rates to zero. The era of lowflation-plus-liquidity-trap now rivals in length the 70s era of stagflation, and has been associated with much worse real economic performance. So where, asks Fatas, is the rethinking of economic theory and policy?

I asked the same question a couple of years ago. I’d add, as I did in that earlier piece, that some of us anticipated much though not all of what has gone wrong. Fatas says,

But my guess is that even those who agreed with this reading of the Japanese economy would have never thought that we would see the same thing happening in other advanced economies. Most thought that this was just a unique example of incompetence among Japanese policy makers.

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