A Reconsideration of Fiscal Policy in the Era of Low Interest Rates by Jason Furman and Lawrence Summers published by Brookings, indicated by Alvaro Manoel (12/2020)
Here is the “conclusion” of the paper:
Six years ago one of us reintroduced the term “secular stagnation” to describe this period of low interest rates, arguing that it was the result of an excess supply of saving meeting a declining demand for investment and thus putting downward pressure on interest rates, potentially with the zero lower bound for interest rates preventing the market from clearing. The term “secular stagnation” has a negative resonance and was intended as a warning and prod for action. But it should not be understood as an unqualified negative event that happened to the economy.
Whether low interest rates are good or bad for our economic future depends on our choices. Since interest rates cannot go well below zero as long as cash is still in existence—and even low interest rates may lead to financial stability problems—this creates a challenge for the economy and especially for attempts to manage recessions with countercyclical monetary policy. Low interest rates also create numerous opportunities. They expand the scope for expansionary fiscal policy, make the debt more sustainable and increase the scope of public investments that will pay for themselves over time. Whether the era of low interest rates becomes a time of more prolonged and severe recessions and greater financial market bubbles or instead becomes an opportunity for public investment and stronger economic growth depends on macroeconomic policy decisions. The correct diagnosis of our situation is the starting point for better macroeconomic policy going forward.
