The great Jim Grant took the time to respond to Ken Rogoff's absurd article in the WSJ and his new book with his own WSJ piece which you should read in its entirety at the link above. Below are a few of the highlights and a few thoughts from me.
In a deep recession, Mr. Rogoff proposes, the Fed ought not to stop cutting rates when it comes to zero. It should plunge right ahead, to minus 1%, minus 2%, minus 3% and so forth. At one negative rate or another, the theory goes, despoiled bank depositors will stop saving and start spending. According to the worldview of the people who constitute what Mr. Rogoff fraternally calls the “policy community” (who elected them?), the spending will buttress “aggregate demand,” thus restore prosperity.
You may doubt this. Mr. Rogoff himself sees difficulties. For him, the problem is cash. The ungrateful objects of the policy community’s statecraft will stockpile it.
What would you do if your bank docked you, say, 3% a year for the privilege of holding your money? Why, you might convert your deposit into $100 bills, rent a safe deposit box and count yourself a shrewd investor. Hence the shooting war against currency. If the author has his way, there will be no more Benjamin Franklins, only Hamiltons, Lincolns and George Washingtons. Ideally, says Mr. Rogoff, many of today’s banknotes will take the future form of clunky, base-metal coins “to make it even more difficult to carry large quantities of currency.”
A positive integer would almost seem inherent in the idea of interest. When most of us want something, we want it now. And if we don’t have the money to buy it now, we borrow. “Present goods are, as a rule, worth more than future goods of like kind and number,” posited the eminent 19th-century Austrian theorist Eugen von Böhm-Bawerk.He called this behavioral truism the core of his theory of interest.
Then again, because not everyone is equally impatient, some of us are prepared to wait, therefore to lend. Seen in this light, the rate of interest is either the cost of impetuousness or the reward to thrift. In the topsy-turvy world of Mr. Rogoff, negative rates would be the reward to impetuousness and the cost of thrift. A small price to pay, he insists, for a quick exit from a deep slump.