10 Comments
Feb 12·edited Feb 12

Maybe this is too simplistic, but could it just be the increasing supply of money over time? Savings held around the world must've grown immensely over time as people have been lifted out of poverty. The demand for that money can't keep up with the massive supply increase. It's like a store of energy that just keeps getting larger, that as a society we have been unable to pull from at the rate we're filling.

Maybe if we could get a much larger share of the population to be potential innovators the demand for money would increase, but overall it seems like very few people actually try to demand an excess of money to invest into entrepreneurial endeavors.

Expand full comment

Wouldn’t you expect the safe rate to trend towards zero as life expectancy grows?

Expand full comment
author

Yes, to the extent that longer life expectancy increases patience that is already there from families that think dynastically and institutions that think long term. But while we have had a near-tripling of life expectancy, we have had a 50-fold increase in the rate of technological progress...

Expand full comment

Hm i was not aware that there was a central statistical bureau capturing consistent interest rate and other eco data for the relevant economies since the 14th century -- who knew and looks like it would be a great place to work for job security!! Since we cannot even be sure what the real interest and inflation rates are now given the noise in the data (though the fed wants that precision and pretends to have it), i am suspect...

Expand full comment

How is it possible for returns on safe assets be ~10 pa for a century? That implies multiplying by 13,780 times!

Expand full comment
Feb 11·edited Feb 11

You citizens of Berkeley are a fortunate people; and to be a professor at Berkeley must be one of the best of all vocations.

Do you reckon that we ought to measure interest rate volatility in absolute or relative terms? Do you not find it striking that even as the level of the real rate has declined, the absolute volatility of that rate seems to have shrunk not at all since the dawn of the "imperial-commercial age"? And that the introduction of the Federal Reserve system has not reduced the variation in rates, but seems to have slowed down the clock by which they occur?

Expand full comment

"You citizens of Berkeley are a fortunate people; and to be a professor at Berkeley must be one of the best of all vocations."

Totally agree!

Expand full comment

I would no more think of a single nominal or real rate across the globe that at a minimum for each nation or polity, just as we do for rates in different countries and based in different currencies.

1. Which countries, or lenders and borrowers are these rates derived from?

2. I understood that during England's war with Napoleonic France, England was able to borrow at much lower rates than France as England's reputation for not defaulting on loans from lenders or debasing the currency, was much better than France's. Therefore piecing together interest rates through history must take into account who the lenders and borrowers were - sovereign, individual, etc.

During this stretch of European history, there is the start of the Renaissance, with condirable borrowing, followed by Spain's dominance as it plundered the gold in the New World and resulted in inflation (did nominal rates spike at that time?), then the rise and fall of France and the dominance of Britain for much of the C19th with its strong banking system. To me the standout feature is the rise in real rates in the C15th. I would like to see nominal rates as well as evidence of rates is probably stronger than estimated inflation rates.

lastly, it is evident that the estimated real rates are highly volatile. Did that volatility decline as banking became institutionalized, with mints controlling coinage debasement with milled edges, and stronger government? In the c20th, didn't the Bretton Woods agreements helped stabilize exchange rates, eliminate high inflations in Europe, that finally succumbed to the 1970's oil shock and the end of the gold standard? The long period of the Pax Britannica followed by the Pax Americana was a relatively stable era and with it one might think reduced lending rates.

Expand full comment

Oh, I'm so glad I'm not alone. That's what I think about with interest rates, too, especially at 2am.

Expand full comment

Awesome! Please, with permission, record the lecture or webcast live.

Expand full comment