New Economic Perspectives has the article Where Danger Lurks: The Dark Recesses of the Orthodox Mind.

Is there an alternative? Here’s Rogoff’s proposal, cited by Blanchard:

“Harvard Professor Kenneth S. Rogoff, former head of the IMF’s Research Department, has suggested solutions other than higher inflation, such as the replacement of cash with electronic money, which could pay negative nominal interest. That would remove the zero bound constraint.”

Uhhm. Can someone please slap Rogoff and explain to him that lowering interest rates is not a solution to a problem of low rates and deflationary pressures? Rates are already so low on treasuries that low net interest paid by government to savers is depressing demand. What, he wants to push that below zero so that American savers have to pay government? And that is supposed to stimulate the economy?

Clueless as usual.

Electronic money? Really? What world does he live in? Like George Bush, Sr, has he never been to a grocery store? Is he yet to discover zebra codes and credit cards?

Money is 99.9% electronic already. And much of it already has negative returns. Called fees.

One wonders what passes for reality in the hallowed halls at Harvard.  You have to give people like Rogoff credit for their tenacity.  They can hold onto an idea no matter what the evidence to the contrary.

I found another quote quite remarkable.

In other words, like the drunks who look for their keys under the street lights, Blanchard preferred to model impossible worlds because the math was easier. The world—obviously—is not linear, but the math skills of economists were not sufficient to model real, nonlinear worlds.

I don’t know what the big deal is with nonlinear equations, I spent at least the first 20 years of my career on software that solved non-linear equations.  Let me introduce you to the Newton-Raphson method, Professor Blanchard. Actually one of my very first assignments in my college freshman computer course was to write a Newton’s method solver in assembly language.