Negative Real Yields

The government can borrow money for cheap at the moment. Indeed, the government can borrow money at negative real rates over a five or seven-year time horizon:

The appropriate policy implications of this are, I think, obscured by the fact that Americans have some deep disagreements about the appropriate size and scope of the state. It’s important to try to put your view of what the government should be doing out of mind for a second and just keep in mind that you presumably think it should be doing something. Under conditions of negative real interest rates, “taxing productive activity to pay down debt is really obviously the wrong thing to do, and borrowing money to employ currently unemployed resources is really obviously the right thing to do.” The short-term budget deficit, in other words, should be much higher. If you genuinely think it’s the case that there are no projects with a positive rate of return that the government could undertake, then we could just radically reduce taxes on a temporary basis. But either way, we should be borrowing more money. When someone offers to lend you money at a negative interest rate, you don’t turn him down.

UPDATE: Ten year yields now negative as well.