Guy Wroble (Letters, September 2) is right to decry the increasing imposition of minuscule and even negative interest rates by central banks as a blight and definite danger to the economy and financial system. But he is wrong to attribute this approach to supply-side economists (who emphasise other matters entirely, such as skills, infrastructure, entrepreneurialism, innovation, efficient but limited administration, and moderate tax and regulation).

Low interest rates as prescribed by the authorities clearly belong to the demand management school, hoping that supply will be forthcoming in response, essentially the opposite of his claim. It is Keynesians who cite the “euthanasia of the rentier” approvingly. And when that redistributionist flush is eventually busted, they turn eagerly instead to governments spending even more (as indeed does Martin Allen in an accompanying letter), amplifying debt further.

Modern central banks have adopted a misguided ethos, publicly believing that inflation boosts growth, as they frantically paper over the cracks created by their own policies. Politicians mostly go along with it because they like the idea that the state can always buy growth, thereby procuring power, privilege and prestige for themselves.

As Mr Wroble alludes, though, in fact relentless easy money leads instead to precautionary saving rather than sustained spending, as households reject the plundering of their real incomes and wealth, with their lifetime finances properly in mind. In that regard, Keynesians are not entitled to quote the “paradox of thrift” when personal savings ratios are already too low as a consequence of ludicrously low interest rates.

We could all just get real. The authorities are simply moving deckchairs around the Titanic, while stoking the engine. Artificial booms cannot be sustained forever.

Andrew Shouler
Grays, Essex, UK

Get alerts on Letter when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)