I've argued this for years. Interest rates peaked at about the same time that wealth inequality began to diverge around 1980 or so. I don't think any of this is terribly complicated. Money is a commodity, and like all commodities, the price is set at the margin. Money also has diminishing marginal utility, so as you accumulate more of it, at some point it has less use.
Think about two people, one extremely wealthy, one middle class. The middle class guy making $75k probably has to spend all his money for consumption: food, rent, car, etc. There's little left over for saving or investing. In order for that guy to justify forgoing consumption and instead saving it, he requires a high interest rate, otherwise it's not worth it. But what about the guy worth $100 million? He can't spend it all on consumption, so he has to save a lot of it. Ah, but what's his opportunity cost? Zero. He has no choice, and the money he'll earn from interest won't even get spent anyway. So, two people, two very different marginal costs.
The world is just one giant pool of capital. Over the last four decades, as capital has shifted from being more evenly spread out amongst people with high marginal costs to a smaller group of people with marginal costs of zero, interest rates keep falling...the majority of capital now resides amongst people who can't spend it all and are happy to earn any real rate of return.
Think about two people, one extremely wealthy, one middle class. The middle class guy making $75k probably has to spend all his money for consumption: food, rent, car, etc. There's little left over for saving or investing. In order for that guy to justify forgoing consumption and instead saving it, he requires a high interest rate, otherwise it's not worth it. But what about the guy worth $100 million? He can't spend it all on consumption, so he has to save a lot of it. Ah, but what's his opportunity cost? Zero. He has no choice, and the money he'll earn from interest won't even get spent anyway. So, two people, two very different marginal costs.
The world is just one giant pool of capital. Over the last four decades, as capital has shifted from being more evenly spread out amongst people with high marginal costs to a smaller group of people with marginal costs of zero, interest rates keep falling...the majority of capital now resides amongst people who can't spend it all and are happy to earn any real rate of return.