Low interest rates have left the Fed backed into a corner
One of the biggest economic stories of the 2010s is interest rates and how low they are. At the beginning of the decade, the Congressional Budget Office forecast that the yield on 10-year Treasury bonds would average around 5% during the 2010s. Today, those rates are well below 2%, and CBO projects they’ll hover around 3% for the next decade. This reflects a far-reaching change in the U.S. economy and, indeed, the world economy: There has been a steady, sustained decline in what’s sometimes called “the natural rate of interest,” the one expected to prevail when the economy is healthy and inflation low and stable. This makes it possible for the U.S. government to shoulder a larger federal debt and reduces cost of borrowing for everything from home mortgages to public investments that could raise living standards in the future. But it also makes the Federal Reserve’s job tougher: With interest rates so much closer to zero than has been the case in the past, the Fed has less room to cut rates to fight the next recession.
Robbing the poor to give to the rich
Income inequality’s continued growth in the post financial crises American economy is the most significant economic development of the 2010s. Not as well appreciated is the growing role America’s payment system has played as a silent, reverse Robin Hood. What I mean is: The payment system has transferred hundreds of billions of dollars over this decade from the poor to the rich. How? From the explosion of tax free credit card rewards available only to the well healed, to the incredible costs of a slow payment system born by those working paycheck to paycheck in overdraft fees, to the rise of payday loans.
The cost of the free market was high for some
The period from 2010 to 2020 saw the longest economic recovery on record. The bad news is that we haven’t used this good economic news to make needed public investments, reduce the national debt, or address the needs of those left behind—the group that President Trump called “the forgotten Americans.” One result is that a number of economists are now challenging the intellectual foundations of the kind of free market philosophy that has permeated our political discourse, led to unaffordable and poorly designed tax cuts, and ever-growing inequality.
Chosen excerpts by Job Market Monitor. Read the whole story at What was the big story in economics over the last decade?
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