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Comment by bubble_talk | Hacker News Reader

When I see people defend negative interest rates, I am reminded of this saying by Orwell: "One has to belong to the intelligentsia to believe things like that: no ordinary man could be such a fool."

>>One likely factor behind the savings glut and negative interest rates is negative “time preference.” Once upon a time, economic theory maintained that people always value today’s consumption more than tomorrow’s consumption – and thus display positive time preference.

An alternative theory: people's time preference is still very much positive, but becomes negative when presented with a set of equally bad options - negative interest rates plus high risk speculative investments plus a history of governments around the world unexpectedly seizing or devaluing wealth building assets. To me, these bad options seem to be the making of the governments and not naturally occurring scenarios.

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Especially for rich people and for consumption (not investment) it looks obvious to me that they have negative time preference for consumption. Why? They could choose to consume all their money today to whatever they want (business jets, charity, space travel etc) and live rest of their lives in poverty if they face negative interest rates on their assets. That's what a positive time preference looks like. Of course, even when rates are negative, the rich people choose to live comfortably also in the future, even if their total consumption is slightly smaller. And as the wealth has been concentrating during the last decades more and more to the wealthy ones, the interest rate needs to reflect more and more the time preference of the wealthy ones. You want to get higher interest rates, you need to reverse the wealth concentration.

(All of the above is completely without source or further arguments or detailed analysis available, just my thoughts.)

To me this comes back to the "r > g" controversy: https://www.ft.com/content/e1b9254e-f476-11e3-a143-00144feab...

In order to earn a positive rate of return without simply taking wealth off others, the overall world economy has to grow. This growth appears to be slowing, and also significant concentrations of wealth are being stashed away (e.g. Chinese investers in Vancouver and other cities).

Not to mention the huge "negative growth" risks presented by climate change. There's going to be significant investment needed to reduce CO2 and/or mitigate the impacts of these, just to maintain the same level of economic output! An exogenous source of negative growth.

Basically the wealthy have to choose between negative interest rates, voluntary charity, wealth taxes, sudden confiscation, or invalidation of worth due to collapse. You can't take it with you, as the saying goes.

I've recently been thinking about how we often talk academically about the idea of the market being efficient, but not so much about the time frame for that efficiency.

In essence, the market is simply an economic manifestation of evolutionary theory.

But the same way if evolution took place for an organism with rapid mutations and a short life cycle across seasons, you'd potentially have most of the species adapting to cold weather and then suddenly dying off during summer, our short outlooks are probably creating market optimizations that are adaptive in the short term but maladaptive in the long term (as an obvious example, trying to cover up global warming instead of plan around its inevitability).

I keep seeing the market make changes that make sense if the world was going to end in the next five years, and dig itself into a deeper and deeper hole, continually confident in its wisdom.

Your alternative theory doesn't make sense: being presented with options like negative interest rates ought to nudge people further towards current consumption (a positive time preference) rather than the opposite.

Are we actually disagreeing? This seems to be a case of ambiguous terminology [1]. But either way, what you said here is exactly what governments want:

>>being presented with options like negative interest rates ought to nudge people further together (I think you meant towards) current consumption

[1] https://en.wikipedia.org/wiki/Time_preference

So the point is that in the past, it didn't take negative interest rates in order to do that, because people overall seemed to naturally have a significant preference for current consumption (+ve time preference). Another way of putting this is that in aggregate, people wouldn't lend money even risk-free for less than a decent rate of interest (the idea of a 'natural rate of interest').

The hypothesis in the article is that the reason near-zero and even negative interest rates are seemingly required to give the same kind of nudge now is that the underlying preference for current consumption has weakened substantially. The other side of this coin being that people will now happily lend money for a much lower rate because they now value future consumption relatively more than was previously the case (the 'natural rate of interest' has gone down).

OK, sorry, now I understand.

>>the underlying preference for current consumption has weakened substantially

I have a feeling this is a rabbit hole I don't want to go down :-) - but has the underlying preference for current consumption weakened substantially because of (the author's claim) that people are living longer after retirement, or is it because people feel current consumption isn't giving them their money's worth? When you hand in your dollar, you expect to receive something worth that dollar.

In other words, if people suddenly woke up tomorrow and started accepting gold as currency, will the preference for current consumption be as weak? Or will it return to the previous levels because it is easier to see if you are getting your "unit of currency"'s worth? To be clear, I don't know the answer. But if it is the latter, then people's time preferences may not have really changed.

Do people naturally have a better sense of what a gram of gold 'should' buy versus a $50 note? I'm only going on personal experience here, but I doubt it.

Here's another possibility, though: what if a lot of the consumption that was stimulated since the GFC was really capital expenditure brought forward - things like households upgrading and replacing their durable goods - replacing that dodgy fridge a little earlier than was planned, that sort of thing? Eventually that well will run dry, and households might well start saving instead of buying concert tickets or whatever.

Time preference is a comparison between the present and future. So the relevant factor is the time differential, rather than the value at any particular point in time. The relevant question is not "does a dollar bill represent at least $1 of utility?". The relevant question is "does a dollar bill have more utility today than tomorrow?" Eg. suppose we're in the midst of hyperinflation. Any savings I have are practically worthless today, and also are worth less tomorrow than if I'd spent it today.

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