Economy, Interest Rates, and Cycles

As I have been thinking about the economic crisis, one thing keeps nagging at me. I have thought for a long time that interest rates were too low, and yet they kept getting lower. The constant lowering of interest rates during high growth seemed to have been an attempt to maintain growth and prevent a recession. And that decision was made on the assumption that we could actually prevent recessions.

This article in the Atlantic however suggests that the normal business cycle (boom and bust) still exists and maybe always will - that we have not conquered it. So maybe we should have raised interest rates during high growth instead of lowering them to maintain the high growth. By lowering them further while we were growing, we not only created a bubble, but removed one major mechanism we have for getting ourselves out of the recession. Interest rates cannot be lowered further, so the Fed is left with creative but risky mechanisms to get the economy going again.

There has been a lot of talk about lax regulation under Greenspan, and rightly so. But I think the Fed's policy on interest rates needs to be considered as well.