A Reconsideration of Fiscal Policy in the Era of Low Interest Rates

Foreign Affairs

November 30, 2020, Paper: “The last generation has witnessed an epochal decline in real interest rates in the United States and around the world despite large buildups of government debt. As Table 1 illustrates U.S. ten-year indexed bond yields declined by more than 4 percentage points between 2000 and early 2020 even as projected debt levels went from levels extremely low by historical standards to extremely high by historical standards. Similar movements have been observed at all maturities and throughout the industrial world. Available market data suggests that the COVID crisis has depressed real interest rates despite raising government debts, likely by increasing inequality, uncertainty and the use of information technology.”