Every Discussion of the Economy Keeps Coming Back to the Same Keynes Quote

When the economy gets hot, and inflation pressure starts to build, naturally the talk always turns to rate hikes as a tool to tamp things down.

However, in Chapter 22 of his book “The General Theory of Employment, Interest, and Money,” John Maynard Keynes offered a different prescription:

Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest![5] For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.

Obviously, this sounds highly counterintuitive. But in conversation after conversation, this idea of the permanent “quasi boom” as a remedy for the boom itself comes up.

For example, next week on the podcast we have a discussion with Ryan Petersen, the CEO of the logistics firm Flexport. His firm helps companies deal with logistics and shipping , which — as everyone knows these days  — are a mess. One solution would be an expansion of shipping capacity, but that’s only going to happen if firms expect the current global trading boom to last. If the expectation is that we just go back to the pre-virus slump, why invest more?