Several years ago, experts predicted with confidence that the US Federal Reserve would soon “normalize” monetary policy, gradually raising interest rates and reducing its portfolio of government securities and mortgage bonds. This would provide the Fed with space to cut interest rates in a future crisis.

Time has passed, but the monetary policy seems anything but normal. Markets and the real economy could not bear the change as a result of rising interest rates and shrinking central bank balances. Instead, monetary institutions around the world had to apply another dose of unconventional monetary policy – ultra-low interest rates and quantitative easing, to continue growth.

There has been considerable wringing of hands over the reasons why productivity growth is anemic and inflation is stubbornly low. This is important because increasing productivity, which allows the economy to grow faster than the population, determines the increase in national wealth. Similarly, inflation erodes wealth, so we need to adjust output to make sure its growth is real, not simply reflecting higher prices.

However, today we have a “dialogue of the deaf” between Silicon Valley and the economics profession on this critical issue. Economists cite extensive data that shows that productivity is increasing at a lethargic rate, and say it shows the absence of real technological breakthroughs, such as flying cars. The technology industry is witnessing a global economy that is rapidly transforming from the industrial to the digital and argues that changes must drive productivity to jump at extraordinary speed, generating broad financial benefits.

Technology leaders also say they have a mission to cut costs anywhere. The rapid doubling of data processing speeds and the use of algorithms allow us to use on-site software for many physical activities at a much lower cost to both manufacturers and consumers. Meanwhile, smartphones, e-commerce, and global supply chains are also cutting prices.

The digital revolution, according to the technology industry, with its ruthless efficiency, improved price transparency and the “creative destruction” of existing business models, is obvious and natural. According to her, there is nothing wrong with delivering ever-increasing value at continuously falling prices. Any data that points otherwise should indicate another flaw in the old economy.

With that in mind, let’s return to the question of why the global economy is proving allergic to modest interest rate hikes. If traditional economists were right and real interest rates (actual levels minus inflation) were actually moving to near zero, then interest rates could increase significantly without causing turmoil.

Now let us think of the technocrats’ view that we do not live in an economy characterized by low productivity growth, low inflation and modest increases in gross domestic product. What if they were right that we were living in an economy with rapid productivity growth, rising production, and inexorable price drops? If today we actually have deflation of about 2%, the real interest rates would be roughly equal to the historical levels and the stubborn resistance to the economic activity of their increase would not be surprising. Does this alternative view better match reality?

Moderate deflation is not necessarily harmful. The US economy suffered from deflation in the 19th century, partly due to two economic changes – farm mechanization and transportation, and later the shift of agriculture from the industry. In both cases, the transition greatly increased productivity and standard of living. The 19th century was also plagued by multiple severe recessions, which outlined the urgent need for monetary policy instruments and ultimately led to the creation of the Federal Reserve.

What would we do differently in a deflationary economy? First, we would prepare – operationally and psychologically – for a world of negative interest rates in which lenders pay borrowers. The Fed’s current mandate to pursue a specific level of inflation will be replaced by new purchasing power measures that take into account “better, faster and cheaper” technology. We will explore the markets to find the levels of nominal interest rates at which economic activity is dying. And we would talk about real, not nominal interest rates.

Changing the paradigm requires radical rethinking. Today’s economy is experiencing an epochal shock, driven by technological change and globalization. This suggests that negative nominal interest rates, which are now common in most of the world, maybe normal and persist for a long time. Regulators need to adapt their outlook and tools accordingly.