to raise or not to raise? that is the question

Raise!

Raghuram Rajan accurately warned central bankers in 2005 of a potential financial crisis if banks lost confidence in each other. Now the International Monetary Fund’s former chief economist says the Federal Reserve should consider raising rates, even as almost 10 percent of the U.S. workforce remains unemployed.

 Do not raise!

That is, other things equal, demand is higher, the lower the real interest rate. Do you really want to quarrel with that? But right now, thanks to the aftermath of the financial crisis, even a zero nominal rate, which is a slightly negative real rate, isn’t low enough to produce full employment.
In normal times, when the zero lower bound isn’t binding, this basic framework suggests that conventional monetary policy can play the key role in stabilization. So in normal times I’m all in favor of having the Fed take on the job of managing the business cycle, and basing fiscal policy on long-term concerns.
But now we’re up against the zero lower bound; and that changes everything.