Re: ECONOMICS; Interest rate question

From: Robin Hanson (
Date: Thu May 17 2001 - 08:00:06 MDT

Curt Adams wrote:
> >Althought it no longer reflects my opinions about future growth rates,
> > offers a simple model adequate for
> >this. Interest rates should equal a preference discount rate plus a
> >factor proportional to the growth rate in consumption. If productivity
> >rises faster, consumption will rise faster, and so interest should be
> higher.
>That's the supply-side. But isn't there a demand-side effect too? If global
>productivity rises more quickly, that should bump up global discount rates
>as well. This will result in given marginal investments becoming undesirable
>and pushing down the demand curve. ...

That paper argues that the while the demand for investment changes with
investment opportunities, the supply is fixed by human nature - discount
rates are hard coded and do not change.

Robin Hanson
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030-4444
703-993-2326 FAX: 703-993-2323

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