This long moderation has reshaped our economy so thoroughly that most of us don’t even realize how much is founded on rock-bottom rates. Are you sitting on a nice chunk of home equity? You can thank the falling price of borrowed money. Are you hoping to collect a government pension? Fund managers might well have been pushing your money into riskier asset classes, “reaching for yield” because traditional safe investments such as bonds no longer pay enough to keep the fund solvent. Have you ridden in an Uber or streamed movies on Netflix? That reach for yield drove, among other things, a venture capital boom now screeching to a halt as the price of money ticks up.
Low interest rates have also reshaped our politics. After the financial crisis, some economists urged the government to be more aggressive about using borrowed money to restore full employment. At first, this was an argument about stimulus, but it soon became about things such as infrastructure investment — with borrowed money so cheap, wasn’t it stupid not to make productivity-enhancing investments in our future? Over time, it became an argument against any kind of fiscal restraint whatsoever, as I discovered last week when I questioned the wisdom of borrowing $500 billion to forgive student loan debt. Why does it matter, interlocutors asked, when the government can borrow the money practically for free?
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