We can tell ourselves comforting stories about how there are pain-free alternatives, but these narratives are misleading. We have spent a lot of time searching for easy options. These schemes don’t stand up to scrutiny. Here’s what we can really do about mitigating the pain of necessary reform. First, we can take the edge off with the interest rate tool.
Provided we have lower inflation, and if country risk comes down, we can keep rates low, and maybe go lower. Second, we can devise a credible plan for making things better again. In macroeconomics, as in so many things, it’s not about where you are, so much as where you’re going.