From a Keynesian point of view the impression is more important than the reality. There may not be austerity, but people think there is, and they’re saving rather than consuming as a result, and that slows the economy.
They don’t always. Even if they do, investment doesn’t help if it doesn’t have anywhere to go. Right now the economy is not investment-limited, it’s demand-limited (as you can tell by e.g. low returns on investment).
a) there’s a persistent market distortion because investment profits are undertaxed
b) savers are often not terribly price-sensitive; a lot of people will “save as much as they can” at any interest rate. Also interest can’t go below nominal zero (many bank accounts are very close to this).
That too, but conventionally long-term interest rates are 10-years and up. In the US the term structure usually goes out to 30 years, in other countries sometimes more.
From a Keynesian point of view the impression is more important than the reality. There may not be austerity, but people think there is, and they’re saving rather than consuming as a result, and that slows the economy.
Why? If savings come out the other end as investment.
They don’t always. Even if they do, investment doesn’t help if it doesn’t have anywhere to go. Right now the economy is not investment-limited, it’s demand-limited (as you can tell by e.g. low returns on investment).
Why doesn’t the market for capital equalize the discrepancy between supply and demand by adjusting the price (the interest rate)?
a) there’s a persistent market distortion because investment profits are undertaxed
b) savers are often not terribly price-sensitive; a lot of people will “save as much as they can” at any interest rate. Also interest can’t go below nominal zero (many bank accounts are very close to this).
What do you mean? Corporate tax rates, at least in the US, are higher than personal tax rates.
Sure it can.
It does for long-term interest rates. Short-term interest rates are effectively determined by the government.
“And in the long run we’re all dead”? : )
That too, but conventionally long-term interest rates are 10-years and up. In the US the term structure usually goes out to 30 years, in other countries sometimes more.