Economics

Real World Shows Economics Has a Deflation Problem

The textbooks insist that people cut spending when prices drop. Does that make any sense?

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Photograph:David Ramos/Getty Images

Jacob Rothschild, the billionaire scion of arguably Europe's greatest banking dynasty says we're living through "the greatest experiment in monetary policy in the history of the world." There's a major flaw in the experiment, though: the real world isn't responding to policy in the way that the textbooks say it should. Moreover, it seems increasingly evident that the fears that led to zero interest rates and quantitative easing were at best overblown, if not entirely unjustified.

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