Our alternative ‘iron law of inequality’ can be annotated as r < g, with r signifying the rate of interest and g the economy’s trend growth. This formula, which is the inverse of Piketty’s, can explain both changes in the distribution of income and wealth during the 1920s and the rise in inequality since the 1980s and, in particular, the Great I

By itself, the mechanical effect of reducing accordingly the discount rate applied to estimated future cash flows explains largely the rise in value of equities (thus stock options and chief executive compensation), and real estate values. Bond prices rose equally, yields declined. Search for returns became desperate, and massive liquidity encourag

While the rich got richer, the poor stopped having children. High levels of student debt, weak income growth and elevated house prices discouraged young couples from starting a family. In the United Kingdom, the birth rate and housing market were inversely related: as house prices went up, the number of births fell.105 In parts of Europe worst affe

The OTX Classic Car Index – which tracked a basket of blue-chip vintage cars – quadrupled between 2005 and 2018, handily outperforming the world’s stock markets. A German bank recommended that clients add vintage car exposure as ‘an attractive addition to their portfolio in terms of yield and value stability’.63

The Fed had hoped that by boosting asset prices with easy money, consumers would go out and spend more. But within a few years of the crisis, the ‘wealth effect’ – people’s propensity to spend their capital gains – had fallen to half its historic average.51 Having borrowed too much during the credit boom, most Americans were forced to curb their sp

As we saw in Chapter 2, the social acceptance of interest is based on the premise that a lender shouldn’t be forced to part with his capital without some reward, especially when the borrower uses the loan to earn a profit.

‘Over the last few decades, we have been conducting a large-scale social experiment with ultralow savings rates, without a strong safety net beneath the high-wire act,’ wrote economist Tyler Cowen.56 Michael Burry, the hedge fund manager featured in Michael Lewis’s The Big Short, put it more bluntly. ‘The zero interest-rate policy,’ said Burry, ‘br

Not long after Rajan’s intervention, an ECB board member, Yves Mersch, warned that persistently low interest rates were forcing savers in some European countries to save more to accumulate the same amount of wealth as they would have done at a time of higher rates.

‘To abstain from the enjoyment which is in our power, or to seek distant rather than immediate results, are among the most painful exertions of the human will.’1 Interest is the wage of abstinence, said Senior.