Global economist and regular Forbes columnist David Malpass contends that there’s a greater problem — “the elephant in the room no one wants to discuss” — than the prospect of interest rate hikes. Malpass writes that he worries more about the “likelihood that returns on capital in coming decades will be substantially lower than past returns.”

Follow the link to read his reasoning, but this blog entry will focus instead on Malpass’ concluding paragraphs.

The economic results of the current zero-rate policy have also been negative: slow trend growth, falling median incomes and high unemployment. Combined with controls on bank leverage, the policy rechannels credit to those who don’t need to be subsidized–the government, big business and the rich. This is a negative-sum game, coming at the expense of those who could use capital more profitably to finance the inventory and accounts receivable needed to help small and new businesses grow. And by explicitly increasing bond prices the Fed created artificially high current returns at the expense of future returns.

The Fed should open up for discussion the benefits to be gained from a small, pro-growth increase in interest rates above the zero boundary. And the sooner the better, because the bigger challenge for society is still ahead: to create new growth, innovation and profit quickly enough to make up for lower risk-adjusted returns on capital than in past decades.

That will require better policies, including a return to market-based (rather than Fed-guided) interest rates and capital allocation, lower tax rates on a broader base and new legal restraints on government spending and debt.