Unfortunately, ultra-Keynesians are too dismissive of the risk of a rise in real interest rates. .No one fully understands why [real interest] rates have fallen so far so fast, and therefore no one can be sure for how long their current low level will be sustained...Economists simply have little idea how long it will be until rates begin to rise. If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause.Jonathan Portes appropriately responds to this idiocy:
Leave aside the silly straw man (repeated elsewhere) that "ultra-Keynesians" want an "unlimited open-ended surge in debt." Who are these "ultras"? Not Martin Wolf and Simon Wren-Lewis in the UK, or Paul Krugman and Brad Delong in the US. And, as Reinhart and Rogoff know perfectly well, of course we think (and hope!) that real interest rates will rise at some stage, when demand and confidence returns and the private sector wants to invest.Actually we have seen lots of pseudo economists claiming we can have fiscal stimulus without worrying about higher real interest rates. The Reagan tax cuts were sold on a Laugher of a cocktail napkin where they would so stimulate growth that deficits would fall. The reality is that the Federal Reserve dramatically increased real interest rates, which ultimately lowered long-term growth. The Bush43 tax cuts were sold on a bastardization of Ricardian Equivalence where they were supposed to not affect interest rates even though they raised consumption (which of course the real version of Ricardian Equivalence would deny). These proponents of free lunch tax cuts, however, typically told us how they abhorred Keynesian economists. Then again – these hacks weren’t actually economists in the first place. So who on earth are Rogoff and Reinhardt calling ultra-Keynesians?