by Negative interest rates — a Kaleckian perspective At any one time a range of profit rates exists in the economy. That range may become more or less extensive in a boom or a recession, or move up and down with some profits cycle. However, the market forces equalising rates of profit across the economy … are weak. So that particular ‘long run’ has never been attained. The practical reality is that a range of profit rates always exists. That practical reality also undermines the argument of those neo-Wicksellians who attribute slow growth or under-investment to a very low or negative real natural or ‘equilibrium’ rate of interest … The existence of a range of profit rates suggests very strongly that there are always some firms that have a positive rate of
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Negative interest rates — a Kaleckian perspective
At any one time a range of profit rates exists in the economy. That range may become more or less extensive in a boom or a recession, or move up and down with some profits cycle. However, the market forces equalising rates of profit across the economy … are weak. So that particular ‘long run’ has never been attained. The practical reality is that a range of profit rates always exists. That practical reality also undermines the argument of those neo-Wicksellians who attribute slow growth or under-investment to a very low or negative real natural or ‘equilibrium’ rate of interest …
The existence of a range of profit rates suggests very strongly that there are always some firms that have a positive rate of return on their productive capital, even after paying near zero rates of interest. The question that arises is why these firms do not invest, in accordance with the standard theoretical imperative of profit-maximisation. The answer is obviously that they suffer from excess capacity in their existing plant and machinery. This is undoubtedly the main factor behind what is alleged to be the negative ‘real’ natural rate of interest that is supposed to warrant negative ‘real’ money interest rates. However, excess capacity is a problem of aggregate demand rather than monetary policy …
Neo-Wicksellian theory suggests that monetary policy is sufficient to regulate inflation and economic activity. However, the case for negative interest rates arises out of the failure of monetary policy and rests on conjecture rather than systematic analysis. More careful examination indicates that the problem of deficient effective demand that lies behind notions of a negative ‘real’ equilibrium or natural rate of interest that requires an even more negative
‘real’ money rate of interest, have to be addressed with measures to deal with that insufficient demand.
For more on Kalecki in relation to MMT, see here.