I think it is a pity that (with the possible exception of his transitive flagging of “Larry Summers Just Confirmed that He is Still a Heavyweight on Economic Policy” through Brad DeLong in his op-ed “A Permanent Slump”) Paul Krugman continues to talk as if the zero lower bound is a law of nature, rather than a policy choice. At least Paul has the potential excuse that he is writing on the opinion page, and is making a strategic choice about how he can best affect policies in the directions he wants to affect them. But Brian Blackstone is the Wall Street Journal’s news reporter in Frankfurt, who specializes in reporting on the actions of the European Central Bank; when he says uncritically in his November 2 article “European Central Bank’s Bond Conundrum” that
ECB interest rates can’t go lower.
without any qualification, that is just bad reporting.
When I gave my presentation “Breaking Through the Zero Lower Bound” at the ECB in July, the staff there took very seriously the idea that a time-varying paper currency deposit fee as I advocate in that presentation could allow the ECB to cut its target rate to -1.25% immediately. They realized that was a big deal and not an easy policy choice to make, both because it would be something unprecedented, and because it touches several political nerves. But there was much less dispute over whether it would work than I see about whether quantitative easing can stimulate the eurozone economy enough. And if there are any limitations on the ECB’s authority that would prevent such an action, no one there pointed to such a limitation.
Brian was within the scope of my previous criticism of reporting in my post “The Wall Street Journal’s Big Page One Monetary Policy Mistake,” which makes the case for the newsworthiness of my proposal to make deep negative interest rates possible for the ECB with a time-varying paper currency deposit fee at the cash windows in the ECB and other banks in the European System of Central Banks. I would be delighted to talk to him directly about that proposal.
In general, reporting what government agencies can do, but choose not to, is helpful by holding them to account. Just so, I believe that matter-of-fact reporting that the ECB could make deep cuts in its interest rate, but so far chooses not to, would help make the ECB accountable–which in turn would better policy more likely. And if the ECB faces any limitations on its authority that would prevent the kind of policy I advocate, reporting on those limitations would help people understand what the issue is. So it matters.