Why are interest rates so low? • Hacker News Board

Re: Why are interest rates so low?

#51

Post by xorcist » Mon, Mar 30, 2015, 4:53 PM UTC

jseliger wrote: post #25

colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

Why the obsession of economic growth? One alternate question might be, "At what point in time do you consider the economy to have become 'big enough' that you don't care about growth?" Today? 2000? 1990? 1970? The people who might think today is "big enough" might also have thought that say 1990 was big enough, and yet very few people would want to be limited to 1990's tech / culture. It seems reasonable to imagine t…

That's not an answer. You could just as well ask "at what point in time do you consider interest rates low enough"? 0%, -1% or -10%?

There's no clear answer for either question, of course, but that doesn't mean we shouldn't discuss them.

Re: Why are interest rates so low?

#52

Post by vasilipupkin » Mon, Mar 30, 2015, 4:57 PM UTC

TheOtherHobbes wrote: post #28

vasilipupkin wrote: post #10

Earlier quoted context omitted.

economic growth, albeit imperfect, is a measure of things getting better for society. So, we should worry about worldwide economic growth, but not necessarily Swedish economic growth. Another point is, lack of growth is a leading indicator of the situation getting worse in the future, even if it is pretty good now. So, yes, economic growth is an imperfect measure, but we have few if any alternatives to economic growt…

Not so much imperfect as deceptively irrelevant. "Growth" has absolutely nothing useful to say about "things getting better for society." Things get better for society when jobs pay well, high quality education is freely accessible, talent and creativity are rewarded, cost of entry for entrepreneurship is low, and ecological support systems are stable. There's nothing even remotely difficult about measuring these fac…

try to think in terms of statistical models, rather than absolute statements. Imagine a continuum in which things you mention receive a numerical score. Growth is a number. It is a number which will have a non-zero correlation with the numerical scores of the things you mention. You can also build models that try to forecast growth based on those scores, and vice versa, forecast those scores based on growth. Once you think in those terms, you can dispense with terminology such as "irrelevant", "useless", "absolutely nothing", etc.

Re: Why are interest rates so low?

#53

Post by dgregd » Mon, Mar 30, 2015, 4:58 PM UTC

dualogy wrote: post #34

colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

> Why the obsession of economic growth? Easy. Essentially unknowable/unpredictable future growth expectations/extrapolations were already baked into present-day voter promises, welfare obligations and many bank/insurance/pension calculations, plus current "financial asset" valuations. Now the big scramble is on to will said growth assumptions into actually happening, lest "all bets will be off", literally.

> many bank/insurance/pension calculations

It will also clearly show how big banks, HFT companies are making huge profits. They are slowly pulling money out of your pension fund.

Banks do not produce, they have no income from dividends, so how they earn?

Re: Why are interest rates so low?

#54

Post by roymurdock » Mon, Mar 30, 2015, 5:01 PM UTC

Consider the simple aggregate production function: Q = zF(L,K) where Q is output, z is the level of technology, known as Total Factor Productivity (TFP), L is labor, and K is capital.

Sustainable economic growth is driven by increases in z, TFP which drives the production function. Government investment in education, R&D, healthcare, and infrastructure increase TFP. There is a serious lack of gov't investment in these areas. In my opinion the share of capital (K) in the equation has grown far beyond what is healthy. Solow posits that capital attracts capital [0]. We have not done enough to offset this natural tendency, and we are seeing the result - huge and constantly growing wealth & income inequality.

The economy is growing in an unsustainable fashion. There is a serious lack of "good", sustainable investments in the global economy. One example of this is investor's willingness to pay the Swiss central bank to hold their money for them. Investors are scared - they know a serious revision in value is bound to occur.

Many parts of the EU are beginning to flirt with deflation. The top comment mentions negative prime interest rates in Sweden that have not affected the standard of living. This is very interesting given the traditional viewpoint that any form of deflation, however minor, is an economic calamity. Maybe for the central banks it is, as they lose control of one their control over the setting of short term interest which has been their prime monetary policy weapon over choice over the past 30 years.

Whatever happens, this is an interesting situation that I'm sure will inform generations to come.

[0] http://en.wikipedia.org/wiki/Solow%E2%80%93Swan_model

Re: Why are interest rates so low?

#55

Post by Bootvis » Mon, Mar 30, 2015, 5:04 PM UTC

colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

The economy needs to grow as quickly as the population because otherwise there would be a reduction in wealth on the individual level.

Also, if inequality remains the same the lives of those on the bottom of society see their lives improve.

Less essential, but the people here should appreciate it, growing the economy means that young people have the opportunity to develop themselves professionally, e.g start start-ups.

Re: Why are interest rates so low?

#56

Post by Someone » Mon, Mar 30, 2015, 5:08 PM UTC

Mikeb85 wrote: post #48

Someone wrote: post #17

Earlier quoted context omitted.

Inflation also is a way to get rid of debt. A few years with 10% inflation would do wonders for the debt of most countries, provided that their debt is in their own currency.

Reasonable levels of inflation usually goes hand in hand with economic growth. On the other hand, growing the money supply too quickly when there's no economic growth leads to a situation like Zimbabwe...

The correlation between inflation and lower growth is not as strong as one would think. See for example the graphs on pages 22-23 in http://www.frbsf.org/economic-research/publications/98-1/15-... and the number of 'generally supports', 'probably' and 'may exceed' phrases in the conclusion.

But yes, 'too quickly' is not a good idea.

Re: Why are interest rates so low?

#57

Post by upofadown » Mon, Mar 30, 2015, 5:10 PM UTC

In the absence of some technological breakthrough that would allow new capital investment to pay for itself, interest rates just can't be that high. We can lend each other money to buy stuff (ex. mortgages) but there are strong limits to the value of that sort of activity (as has recently been demonstrated).

Re: Why are interest rates so low?

#58

Post by cloakandswagger » Mon, Mar 30, 2015, 5:11 PM UTC

xorcist wrote: post #51

jseliger wrote: post #25

Earlier quoted context omitted.

Why the obsession of economic growth? One alternate question might be, "At what point in time do you consider the economy to have become 'big enough' that you don't care about growth?" Today? 2000? 1990? 1970? The people who might think today is "big enough" might also have thought that say 1990 was big enough, and yet very few people would want to be limited to 1990's tech / culture. It seems reasonable to imagine t…

That's not an answer. You could just as well ask "at what point in time do you consider interest rates low enough"? 0%, -1% or -10%? There's no clear answer for either question, of course, but that doesn't mean we shouldn't discuss them.

How is it not an answer? He's saying that the "greed" described by the original commenter is the same source of innovation that's given us all of the modern amenities we enjoy today.

Conversely, I would say outright dismissing the pursuit of growth is not an answer.

Re: Why are interest rates so low?

#59

Post by avn2109 » Mon, Mar 30, 2015, 5:16 PM UTC

Bootvis wrote: post #55

colund wrote: post #6

Why the obsession of economic growth? In Sweden we currently have negative prime interest rate and people have higher salaries than ever and housing prices are all time high. This greed doesn't lead to less global warming or happier people. I think politicians and economists should start thinking about what actually makes people happy. Economics is efficient management of resources nothing else. Giving the population…

The economy needs to grow as quickly as the population because otherwise there would be a reduction in wealth on the individual level. Also, if inequality remains the same the lives of those on the bottom of society see their lives improve. Less essential, but the people here should appreciate it, growing the economy means that young people have the opportunity to develop themselves professionally, e.g start start-up…

>> "The economy needs to grow as quickly as the population..."

In countries with declining populations, ought the economy to contract?

Re: Why are interest rates so low?

#60

Post by Someone » Mon, Mar 30, 2015, 5:22 PM UTC

kardashev wrote: post #26

Someone wrote: post #17

Earlier quoted context omitted.

Inflation also is a way to get rid of debt. A few years with 10% inflation would do wonders for the debt of most countries, provided that their debt is in their own currency.

Inflation would be a way to get rid of debt, but it literally takes money from the poor and working class and gives it to the rich. 10% inflation is equivalent to a person's salary going down by 10%. Also, any savings you had would be eaten up by 10%. Inflation is the same as taking people's money to pay debt. It's not some magic thing that makes debt go poof.

If you manage to combine a x% inflation with a x% rise in welfare payments and of worker's income, people with relatively little money in the bank will not suffer much. That includes the poor and the very rich (who likely will have invested a large fraction of their savings).

The clear winners will be those with relatively high debts, the losers those who have been saving, but not investing.

Is it fair to tax the ants while rescuing the grasshoppers? No, but if the country as a whole is a grasshopper, it may be the best one can do.

A side effect of this strategy is that it teaches ants to invest, rather than put money in the bank. That's another reason why many countries aim for inflation.