The Bob Murphy vs. Warren Mosler Debate: Mosler Explains Permanent Zirp

     I'm really enjoying the debate. I think  both have spoken well Murphy started from a standpoint of explaining that Austrian Business Cycle Theory (ABCT) doesn't believe in the use of economic aggregates but thinks economics must be explained at the individual level.  What strikes me is this is no different from the dominant Neoclassical school.

    http://www.youtube.com/watch?v=cUTLCDBONokl

   Basically the dividing line is between Keynesian economics and pre-Keynesian economics, Prior to Keynes there was no such thing as microeconomics.

   Mosler does a good job of showing that the ABCT w.orry about interest rates being manipulated might have had some validity in the gold standard era but not in today's fiat money system/ He argues that a permanent zero interest rate is not government manipulation.

   He argues that to the contrary having a higher interest rate is actually the government manipulation-for the Fed to raise the interest rate is a subsidy. He argues that ZIRP would be permanent if two things were to happen:

   1. The Fed stopped paying IRR

   2. The Treasury stopped issuing securities-he argues that at most the Treasury should issue only very short term securities.

   So while permanent ZIRP might seem extreme, it in this sense would be natural, indeed, market rate. Note that in a sense he's not so far away from Sumner who criticizes IRR and has said he imagines that in the future ZIRP will be long term in fact.

   Good debate, and I think that Murphy is a good speaker and has a personal touch that is much less strident of the image of Internet ABCT-which is basically Major Freedom. On balance though I'm very impressed by Mosler who clearly wins the debate in the battle of ideas.