Savings in a Fast-Growth Economy (WAS: RE: ethical problem? ...)

Billy Brown (
Tue, 20 Apr 1999 13:00:41 -0500

Ron Kean wrote:
> Interest rates are set by supply and demand. If almost everyone were
> trying to lend substantial amounts, and almost no one creditworthy was
> willing to borrow similar amounts, real interest rates for sound loans
> would be extraordinarily low compared to what we are used to.
> Likewise for return on capital invested in stocks.

Well, yes, but remember there are two sides to that supply/demand equation. A huge supply of money looking for investments is only a problem if there aren't enough profitable investment possibilities. Or, to put it another way, if 90% of the population retires but the other 10% can profitably invest all of their money, then real rates of return will not collapse.

The real question, then, is what will the supply of investment opportunities look like relative to the supply of investment capital. I believe Robin Hanson has looked into these issues a bit. Are there any comments from our resident economist?

Billy Brown, MCSE+I