When I was in college, the bank would give something like 6-7% on savings. If I had a million dollars in the bank I could comfortably live off that interest for life. Now if I put a million dollars in the bank, I lose wealth due to inflation, so I'm incentivized to put it in a fund or something now, which is a lot riskier than bank interest.
What were inflation rates while savings rates were 6-7%?
>lose value to inflation
Inflation always erodes money of course, so there was never a time when that didn't happen when there was inflation.
At 3% inflation, that $70K/yr would lose half its purchasing value in the span of 24 years of your retirement. (It also would cease yielding $50-70K per year over that time as well, but that’s with the benefit of hindsight and you could lock in the rate with a longer term CD at retirement. That still leaves you with half the purchasing power though.)
I don’t think savings accounts have ever been a reasonable way to invest the bulk of your money for future retirement.
Related, my dad and a buddy invested $10k in a CD that yielded 21% back in 1984 I think. If the rates are high enough CDs can be an excellent investment. They’re basically risk free. My bank is offering 0.6% currently. Real rates are very negative right now.
In order to leave purchasing power untouched, you need to grow the account by the nominal inflation rate and leave that for next year (especially in the context of having “a comfortable living situation then and today” over a near-30-year period.)
https://www.putnam.com/literature/pdf/II514-59fb3e978431513e...
As someone who's never bought bonds before, how do I know the 7.12% won't change after the 6 months of the locked rate to the 0.00% and whatever pittance they decide to toss my way in an attempt to account for inflation?
Sincere question, I don't know anything about anything.
https://treasurydirect.gov/indiv/research/indepth/ibonds/res...
That's the coupon rate paid by a bond bought at that time (in the late 90s the bonds paid a real return of 3%, which when added to the current 7.12% inflation rate gives a nominal return of 10.12% for the next 6-months).
The rate of those bonds was 3.5% just a month ago, and historically averages around 2%.
source? yields top out at 2.05% right now. https://www.treasury.gov/resource-center/data-chart-center/i...
I do wish savings accounts still had high interest rates and there wasn't so much incentive to invest in riskier assets like stocks.
Yes, people investing in productive enterprise is actually better for real output, prices, and generally overall welfare.
And college debt holders, mortgage holders, generally impoverished people would rather have lower rates on the debt that they have.
They'd also rather have jobs, which again comes with more investment.
They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.
Generally impoverished people aren't granted lower rates because of the credit system. They typically pay usury rates. Only people with existing assets / collateral get low rates.
>They'd also rather have jobs, which again comes with more investment.
Generally impoverished people have shit jobs, that's why they are generally impoverished. Also, investment leads to automation and offshoring which actually lowers jobs.
>They'd also like to have a higher quality of life, again which comes with more investment in capital/production/real output.
If investment in capital/production/real output helps impoverished people, it's very little. It generally helps already wealthy people.
You're looking at stuff from a textbook macroeconomic position. In the realistic / microeconomic world, things aren't as you are portraying them.
2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied.
3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago. That is due to investment.
Denying those massive quality life improvements is absurd, although increasingly popular in our out-of-touch political climate.
Why would lower rates lead to increased competition for labor? Or higher wages?
Increased wages follow increases in productivity. I can see lower rates spurring businesses to invest in equipment that would increase productivity, but the experience over the past decade has been quite the opposite: productivity growth has slowed despite historically low rates.
Loans to business, home loans, etc. Education loans really weren't a big thing because education used to be subsidized. Also, poor people aren't the only source of ROI on loans. They're quite lucrative though because they seldom are able to pay the principal and are an endless source of interest payments.
2. Unexpectedly lower interest rates increase employer competition in the labor market, raising wages. This is well studied.
Yet wages have been largely stagnant for 40 years, how do you account for that? Got links?
https://www.epi.org/publication/charting-wage-stagnation/
3. The quality of life of a poor person in the US is unimaginably better than that of someone ranked relatively the same 100 years ago.
I'm interested in how you are measuring this. Got any links? How about the quality of life from someone 40 years ago before neoliberalism?
>Denying those massive quality life improvements is absurd
Which quality of life improvements are you referring to? Are you being intentionally vague? I mean we can buy cheap plastic crap from China, but that's at the expense of US manufacturing jobs, isn't it? Food certainly isn't cheaper. Healthcare and housing isn't either. So yes, if you believe buying cheap disposable stuff from overseas is a massive quality of life improvement, then ok. Take a stroll down middle America and tell me how good they have it. I know lots of towns with boarded up main streets because all the manufacturing went overseas. That's where the investment went.
Again, you're quoting macroeconomic theory when microeconomic conditions on the ground subvert any gains in macroeconomic theory.
How does investment drive up wages when labor investment is say 90% overseas or automation?
Take care, believe what you want I guess.
Like I've met people who could actually give a convincing argument that cars haven't necessarily been the unambiguous tradeoff many believe them to be throw knock on effects in infrastructure and planning.
However, there is also the qualitative look at things as well. Numbers in absolute magnitude we're lower back then, so maybe there's something psychological at work with the larger numbers. There was also a smaller population, lower hanging fruit, the attraction of some level of unknown.
The thing I find most interesting in these disengagements is that they always occur right before people come to terms with "oh, I have to actually lay out my priors." Which is generally, in my experience, where the root of every fundamental misunderstanding is to be found.
For example, farmers with land in 1919 could at least live off it and make a living and feed a family off say 40 acres. Many farmers had their own land and would subsequently start losing it in the 1920s-today due to increase efficiency of farming which requires more land to make the same amount of money. I would argue farmers certainly were better off in 1919 than today, at least in terms of net income.
Now, today, that same family doesn't own land, is probably living in an apartment working for a company that is looking for ways to be more efficient through automation and outsourcing. It's very possible they are struggling to feed their family off a single income, so they have to have dual income. It's very possible one or both lose their job for an extended period of time due to market fluctuation. It's very possible they lose their apartment. I would argue that if that family had 40 acres in 1919, they wouldn't be as dependent on someone else for their livelihood, if nothing else, and could at least feed themselves. Any ability to feed themselves today if all that happened would be due to government programs, not market investment.
Generally when people say "people are better off now ...", they are talking about technology. For example indoor plumbing and electric. Everyone has it now and it's relatively cheap. Back then it was a luxury. So as far as that goes, I would say people have it better today than in 1919. Perhaps not the average poor person on Skid Row who doesn't benefit from indoor plumbing or electricity. I would argue that the proliferation of indoor plumbing and electricity was more government spending / investment than market investment though.
Computers weren't a thing back then, so that doesn't really apply. Again back to agricultural efficiency, computers harmed the average/poor farmer and only helped the large land owners.
Also keep in mind a lot of people were farmers in 1919.
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
It's important that people delay consumption so that there is enough room for investments but european countries are running well below capacity. Savings mostly affects inflation rather than the nominal amount of money that can be lent out.
> better [...] prices, and generally overall welfare.
How does investment do that? Plenty examples of the opposite can be found. I find those claims baseless.
Investment also shifts aggregate supply to the right, which causes more output.
I know this is Economics 101, but is there any evidence that this actually happens in practice?