Zero Interest Policy and the New Abnormal: A Critique

Central banks set interest rates to zero and print money through quantitative easing, while finance ministries run huge fiscal deficits. This study explains why inflation remains minimal and why the New Normal is actually the New Abnormal. It traces the academic roots of the New Abnormal to a conceptual confusion about the natural rates of interest and postmodernism in macroeconomics. The book develops a theory of existential risk, which expresses itself in the growing gap between the natural rate of interest and the real rate of interest. It also explores the adverse social consequences of the New Abnormal and establishes a causal link from the New Abnormal to Covid-19 mitigation policy. The book assesses the prospects for ending the New Abnormal and an orderly return to the Old Normal, or a crash-out of the New Abnormal chaotically.

Format: Hardback
Length: 400 pages
Publication date: 02 August 2022
Publisher: Oxford University Press

The New Normal, characterized by central banks setting interest rates to zero and implementing massive quantitative easing while finance ministries run significant fiscal deficits, has resulted in minimal inflation. In his book, Zero Interest Policy and the New Abnormal, Beenstock delves into the reasons behind this phenomenon and explores its implications. He argues that the New Normal is, in fact, the New Abnormal and that it cannot sustain itself indefinitely.

The book traces the academic roots of the New Abnormal to a conceptual confusion about the natural rates of interest and postmodernism in macroeconomics, exemplified by the DSGE (dynamic stochastic general equilibrium) movement. Beenstock develops a novel theory of existential risk, which focuses on the collapse of political economies such as the Bretton Woods system and the New Abnormal. He demonstrates that existential risk manifests itself in the growing gap between the natural rate of interest, measured by the rate of return on capital, and the real rate of interest, as well as in the emergence of cryptocurrencies.

Beenstock also presents a theory of kinetic inflation, based on Keynes' liquidity trap, which explains the absence of inflation in the New Abnormal. He predicts that when zero interest policy ends, kinetic inflation will outbreak, leading to adverse social consequences such as fertility decline, pension problems, house price fluctuations, economic inequality, and intergenerational equity. The book establishes a causal link between the New Abnormal and Covid-19 mitigation policy, and from the latter to the intensification of the New Abnormal.

In conclusion, Zero Interest Policy and the New Abnormal offers a comprehensive analysis of the factors contributing to the New Normal and its potential consequences. Beenstock's insights into existential risk, kinetic inflation, and the social implications of the New Abnormal provide valuable perspectives on the challenges and opportunities facing economies in the 21st century. The book assesses the prospects for ending the New Abnormal and an orderly return to the Old Normal, emphasizing the importance of proactive policies and interventions to navigate the uncertain waters of the New Abnormal.

Weight: 734g
Dimension: 240 x 165 x 250 (mm)
ISBN-13: 9780192849663