This argument really needs more economics to back it up
Japan has been engaging in this kind of monetary policy for over two decades.
Bloomberg: "Japan Must Let Zombie Companies Die"[1]
A big fall in employment is something that has real human consequences in misery, ill-health, and even death.
I don't think that's a valid argument to prevent short-term unemployment at all costs. Winter brings death to trillions of leaves every year. Does that mean it should be stopped? Half a decade ago Detroit's situation was hopeless. Detroit declared a long overdue bankruptcy in mid-2013. By mid-2015, it's described as a "revival template for struggling U.S. cities"[2]
Also, your interest rates/capital investment argument is the wrong way up.
I'm afraid it is the right way up. The effect you're describing is only valid in the short-term, but it is completely the opposite in the long term. In the long run, nominal interest rates = real interest rates + inflation[3]. As you raise nominal rates, real interest rates remain constant, and inflation must rise to compensate. To encourage investment in the long run, we need higher interest rates. Lower interest rates increase spending in the short term, following the effect you've described. In the underlying economy, this increase in spending is funded by consumption of real capital. (e.g. refraining from capital maintenance and using the funds for consumption activities instead.)
In the underlying economy, this increase in spending is funded by consumption of real capital. (e.g. refraining from capital maintenance and using the funds for consumption activities instead
Surely it's funded by expanded credit - after all, that's the transmission mechanism for this?
And I said that raising nominal rates causes inflation to fall, so I think we're agreeing there. Which in the current environment would imply CPI deflation and the ills thereof.
Japan has been engaging in this kind of monetary policy for over two decades.
Bloomberg: "Japan Must Let Zombie Companies Die"[1]
A big fall in employment is something that has real human consequences in misery, ill-health, and even death.
I don't think that's a valid argument to prevent short-term unemployment at all costs. Winter brings death to trillions of leaves every year. Does that mean it should be stopped? Half a decade ago Detroit's situation was hopeless. Detroit declared a long overdue bankruptcy in mid-2013. By mid-2015, it's described as a "revival template for struggling U.S. cities"[2]
Also, your interest rates/capital investment argument is the wrong way up.
I'm afraid it is the right way up. The effect you're describing is only valid in the short-term, but it is completely the opposite in the long term. In the long run, nominal interest rates = real interest rates + inflation[3]. As you raise nominal rates, real interest rates remain constant, and inflation must rise to compensate. To encourage investment in the long run, we need higher interest rates. Lower interest rates increase spending in the short term, following the effect you've described. In the underlying economy, this increase in spending is funded by consumption of real capital. (e.g. refraining from capital maintenance and using the funds for consumption activities instead.)
[1] http://www.bloombergview.com/articles/2016-01-20/japan-must-...
[2] http://www.usatoday.com/story/opinion/2015/07/06/fixing-detr...
[3] https://en.wikipedia.org/wiki/Fisher_equation