Comments on economics, mystery fiction, drama, and art.

Monday, October 19, 2015

High and Low Interest Rates...and the Future.

This is a very nice analysis of the issue and confusions surrounding it.  Here's the conclusion:

"So the perspective of the individual saver is a terrible guide to planning for the future, even though it tends to dominate politics.  From a social theory standpoint, this is a nice example of the conception of ideology based on salience.  People with sufficient income to save have to solve the problem of self-control, and the effect of interest as a reward for this virtuous behavior is what stands out to them.  People whose future income depends on making investments today, like students borrowing to finance their education, see interest as the cost of borrowing.  Each view of interest is ideological, in the sense that it generalizes the particular interpretation of a social phenomenon (like interest rates) from personal experience.  It happens in this case that the borrower’s perspective aligns with reality at an economy-wide level, and the saver’s perspective is misleading."