Raising the Bar

[michael perelman]

What Brad wrote seems to leave out an important part of the story.  Why in a
world of overcapacity and great uncertainty would a firm, even with low
interest rates, be rushing to invest in new capacity?

Brad De Long wrote:


> The idea is that reductions in interest rates will make firms more willing
> to continue to invest to boost their capacity--that if they can't get their
> capital from Wall Street via IPOs (and so forth), they can get their
> capital from banks making low interest-rate loans.
>
> The task--as at least Larry Meyer and Alice Rivlin on the Federal Reserve
> Board see it: I don't know Greenspan's thought in any detail--is to make
> sure that as the stock market declines businesses continue to be able to
> raise capital on attractive terms to keep investment relatively high, and
> thus aggregate demand relavitly high and unemployment relatively low.

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu