Jason Furman: belief

Transcript context

…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? I think so much damage was done to economic forecasting by the experience of the 1980s. We had this brief, relatively brief period of unusually very high interest rates, and people built that into their forecast. For the next 20 or 30 years, there was something almost that felt normal about the 1980s. Then the decline from the 1980s felt strange when a lot of what we’ve seen in interest rates in recent years is going back to the types of interest rates and the type of trend we were on before then. In terms of a longer-term decline of interest rates, you have to be careful about what’s happened to risk associated with interest rates. Bonds used to be more risky than they are right now. Bonds might be negatively correlated with what your consumption is, the marginal utility of your consumption. So maybe they should actually have a lower interest rate now than the pure safe rate of return. I think there’s a couple other different factors going on there. What is the right way to think about the economic losses from Brexit? Paul Krugman says, “Two to three percent of GDP, one-off. It’s bad, but they’ll get over it.” What’s your take?…

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