The decline in interest rates in recent decades is to a large extent due to long-term fundamental forces such as demographic change, the transition from capital-intensive industrial societies to service-oriented knowledge economies, an increasing unequal distribution of income and wealth, and weak growth in productivity and the economy.

Monetary policy may have reinforced this trend, but largely followed it.

Gerald Braunberger


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These findings are hardly controversial in economics today. However, there is no consensus on the weighting of the individual factors influencing the decline in interest rates. In a new paper, the economists Atif Mian, Ludwig Straub and Amir Sufi, based on data for the United States, challenged the widespread thesis that demographic change has significantly accelerated the decline in interest rates. You can see that the distribution of income has a much stronger influence.

The demographics-based argument sounds plausible: it says that the baby boomer generation, which is gradually approaching retirement, saves a lot in the last phase of their working life in order to prepare for a financially worry-free life in retirement. In a world in which knowledge increasingly counts more than physical real capital, these high savings are offset by insufficient demand for investments. The high savings offer thus depress the interest rate.

Mian, Straub and Sufi have taken a closer look at the savings behavior of Americans and have come to a finding that relativizes the importance of this argument.

The saving behavior of the working population does not differ that much when looking at the individual age groups.

The demographic argument is based precisely on the fact that older employees save significantly more than younger ones.

The data show something else: the differences in the propensity to save are much greater in the individual age groups between employees with high and low incomes than between age groups

The rich consume less

The realization that the proportion of savings increases with increasing income and the proportion of consumer spending decreases is not new, but an evergreen in economic literature. In John Maynard Keynes' theory it appears as a "fundamental psychological law". Like many other thinkers of economic stagnation, it serves Keynes as a reason for a decline in economic dynamism: With increasing wealth, people consume less. Because investments in the future are then less worthwhile, the economy is losing momentum.

This topos has reappeared in the contemporary debate about “secular stagnation”. The increasing unequal distribution of income and wealth in the United States over the past few decades has also been a frequently discussed topic for years. Mian, Straub and Sufi have now empirically worked out the important role that changes in income distribution play in the decline in interest rates.