Financialized Everything

Awash in Capital

Hair-Trigger Money

Import Trap

The Fed Piles On

Help Wanted

Flooding the Zone in Puerto Rico

Interest rates—the “price of money”—have been unusually low for most of this century, particularly since the 2008 crisis but going back to Greenspan’s era. The wisest people I know differ on exactly why. Was it purely a policy choice, or the result of larger, less-controllable economic forces? I believe the answer is some of both. Whatever the cause, persistently cheap money has had consequences we are only beginning to recognize.

Ronald Reagan famously said, “If you want more of something, subsidize it. If you want less, tax it.” He was talking about public policy but the point is broader. Economists of all stripes agree people and businesses respond to incentives. In economic theory, we are “utility-maximizing” rational creatures who grab whatever we believe will give us the most benefit for the least effort.

Behavioral economics says it’s not quite that simple. However, there’s no doubt that near-zero, zero, and below-zero interest rates changed the incentive calculations and decisions from what they were a mere 30 years ago. You can’t look at policies or almost anything else prior to the early 2000s as a standard for today. The incentives of low interest rates have literally screwed (that’s a technical economic term) things up.

Today I want to explore some of these changes. Often they make perfect sense in the moment, but over time and across the economy the negative effects add up.