What is the purpose of monetary policy in today’s economy?
Should we still worry about government debt levels, or have we discovered (by some fluke) that we never needed to worry about this? I am generally open minded, but I do have some strong suspicions in this particular debate.
On fiscal policy and the idea that government debt becomes problematic at some precise level, the events of 2020-21 have demonstrated that much of the conventional thinking was wrong.
Far more important is what the debt is for. Debt incurred to prevent a collapse in economic activity is quite different from debt incurred simply to fund an overly ambitious government’s agenda.
On monetary policy, it was clear even before the pandemic that the post-2008 world of endless central-bank generosity had outlived its usefulness. We have long needed to get back to a relationship where inflation-adjusted interest rates bear some resemblance to potential GDP growth rates.
Jim O’Neill, a former chairman of Goldman Sachs Asset Management and a former UK treasury minister, Project Syndicate 9 December 2021
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