A German researcher in economic history argues persuasively that interest rates have been in steady decline for hundreds of years:
Well, let’s move on to your key findings and really, I guess the big finding, which is what’s in the title of your paper, is that interest rates have been trending down for 500 years. Now, you have 700 years’ worth of data, but you find that interest rates have been going down for 500 years, and, I think, show 46 instances of negative rates since 1311. And you note there are some temporary stabilization periods. You list 1550 to 1640, 1820 to 1850, and then in our recent history, 1950 to 1980. I think many of us have as an anchor point that 1950 to 1980 and even after Paul Volcker and the disinflation rates come down up until 2008 all this talk about we’ve got to normalize interest rates. And I think even there’s some confusion. I think central banks tend to follow the natural rate, but nonetheless talk about we need to get rates back up to normal levels. And what your paper clearly show is there isn’t a normal level of interest rates and there is no what you’d call virtual stability.
I don’t know about you, but that really blows my socks off. The determinism of the process is spectacular:
an observer in the late 15th century, early 16th century who had access to this kind of data would already have concluded with an extrapolation that we are facing this kind of zero lower bound problem in the early 21st century.
This makes a number of discussion superfluous:
- for or against extending the role of central banks
- for or against a gold standard
- for or against higher taxes on the rich
…
Even wars don’t seem to have much effect on the progression of the decline.
One can listen to the conversation or one can read the transcript.