Inequality, not gerontocracy

Who killed interest rates?

The received wisdom among economists is that the US’s historical low interests rates are driven by high savings by aging boomers who are getting ready for, or in, retirement.

The idea is boomers have salted away so much cash that banks don’t bid for their savings, so interest rates fall.

But at last week’s Jackson Hole conference, a trio of economists presented a very different explanation for low interest, one that better fits the facts.

In their NBER paper “What explains the decline in r∗? Rising income inequality versus demographic shifts,” Atif Mian (Princeton), Ludwig Straub (Harvard), and Amir Sufi (Chicago) show how inequality, not demographics, is to blame for low rates.

https://www.kansascityfed.org/documents/8337/JH_paper_Sufi_3.pdf

The problem with the “boomers have so much in retirement savings that interest rates are low” theory is that boomers are incredibly unprepared for retirement. There’s a small cohort — ~10% — of very well-off boomers sailing into their sunset years. The rest? Fucked.

It’s true that boomers put in most of their working days before wage stagnation kicked in, that they paid hilariously low university tuition, and enjoyed low housing costs and substantial…