Evan Soltas Says That "Malinvestment" Due to Low Interest Rates in a Depressed Economy Isn't a Thing
A powerful point I had never seen before: Evan Soltas:
How to Think About Malinvestment: If the central bank holds interest rates artificially low, it can in fact induce malinvestment--the central bank is creating an incentive to invest in projects which have negative net present values…. That's a bad thing, and it's not "Austrian" to fear that. Nor is it the irrational response of a private sector to malinvest under those conditions….
But all else isn't equal….
[E]vidence that… NPV-related malinvestment is nothing to worry about comes from the fact that businesses founded during recessions are more likely to last and be successful… discrimination towards higher-NPV [projects] during recessions, not negative ones…