#wicksell

[pskotarczak]

Here we go again. Carl Icahn has something to say regarding Donald Trump running for presidential nomination:

I personally believe we are sailing in dangerous unchartered waters. I can only hope we get to shore safely. Never in the history of the Federal Reserve have interest rates been artificially held down for so long at the extremely low rates existing today. I applaud Donald for speaking out on this issue - more people should.

What does it even mean “artificially” low interest rates ? One could imagine that he refers to Wicksell concept of  natural or in this case maybe unnatural rate. In this manner the natural or more precisely the equilibrium interest rate is the rate consistent with full employment of labor and capital resources. So I guess, what Carl Icahn is saying is that this so called artificially low interest rate is the rate set below the Wicksellian natural or equilibrium rate. But in such a case, if the FED would try to hold the rates too low for too long, the economy would overheat causing the run up of high inflation. But where is this high inflation ? Definitely nowhere in sight with inflation consistently below the Fed’s target. So can we use the term artificially low ? I guess no, but on the other hand, hey what do I know ? Fortunately, you don’t have to listen to me. Go check, what this pretty famous economist has to say. 

[freemarketliberal-blog]

If the utility to the individual cannot be measured, it would seem to be at least as difficult to measure the total utility for the community even approximately, for purposes of comparison with the total sacrifice which, in its turn, is always a definite sum for each given or projected distribution of taxes (even though this sum in turn may not always be easy to ascertain). Such comparisons are nevertheless made, for otherwise the deliberations of the tax-approving assemblies, that 'bargaining between the Government and Parliament' (Wagner), about whether or not this or that public expenditure is to be accepted or rejected, would be completely without purpose.

Knut Wicksell, A New Principle of Just Taxation, 1896