As I have previously argued, Japan will struggle to move from its “zero forever” interest-rate policies, as its government and financial system have grown accustomed to treating debt as cost-free. In the United States, the commercial real-estate sector’s vulnerabilities, together with increased borrowing, could trigger another wave of inflation. Moreover, while major emerging economies have managed to cope with high interest rates so far, they face enormous fiscal pressures.
In this new global environment, policymakers and economists, even those who previously belonged to the “lower forever” camp, may need to reassess their beliefs in light of current market realities. While it is feasible to expand social programs or boost military capabilities without running large deficits, doing so without raising taxes is not costless. We are likely to find out the hard way that it never was.
Kenneth Rogoff, professor of economics and public policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of "This Time is Different: Eight Centuries of Financial Folly" (Princeton University Press, 2011) and author of The Curse of Cash (Princeton University Press, 2016).