Jason Furman: evaluation

Transcript context

…What’s the best way to think about the risk that borrowing rates, in real terms, rise above the growth rate of the US economy? I think that the risk is symmetric. If you look at the last 140 years, about 25 percent of the time, real interest rates have been lower than where they are now; 75 percent of the time they’ve been higher. You look around the advanced economies today, and in most all of the advanced economies, real interest rates are lower than they are in the United States, so I think there’s a certain amount of symmetry. I think rates could go down; rates could go up. At the extremes, though, there’s not symmetry. Rates can’t go down by 10 percentage points. Rates could go up by 10 percentage points, so I think there is some tail risk there. I don’t know that it’s so large that I would make a big effort to deal with it. If you want to deal with it, you don’t even need to reduce the deficit. You can just borrow more long term and lock in the low interest rates you have now. But I wouldn’t want to go hog wild and assume it will never happen either. There’s a new paper from the Bank of England— probably you’ve seen it. In any case, you know Larry Summers. But it suggests there’s a long-term secular decline over centuries, that real rates basically get lower. What should we infer from that? Anything?…

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