The powerful are pleased we find interest rates boring
Tom Streithorst explains here how interest rates are used to stimulate the economy or cause it to retract if inflation starts. But by setting interests really high the right were able to destroy businesses which caused massive job loss and so unions became less powerful. People were scared of losing their jobs so the didn't fight for more wages and so their pay just stagnated. As the economy grew again the wealthy elite took all the profits but ordinary people lost their spending power, but they got over that for a while by borrowing until they were too far in debt to be able to buy anything once again. The economy has now stalled and even with a near zero interest rates it remains dead. The only answer to this is fiscal, i.e, more government spending, says Tom Streithorst.
Tom Streithorst says that it doesn't take anywhere near as much capital today to start a businesses. He works in film and he says how footage can now be shot on a mobile phone, edited with some software on a PC, and be good enough for commercial use.
Technological advances allow us to produce goods more cheaply, while economic insecurity frightens us into saving more and spending less. The desire to save increases even as the need for investment decreases. These two trends are not likely to reverse. These microscopic interest rates are not an anomaly: they are likely to continue as far as the eye can see. This creates an unprecedented problem for policy makers. If you can’t cut interest rates below zero, how can you stimulate the economy?
Until the financial crisis, economists were convinced they knew how to end recessions. They had so much confidence in the power of monetary policy they thought they could cure any economic slowdown merely by cutting rates. The past eight years of low rates but little growth have shaken that certainty.
The government has two tools with which to influence the economy: monetary policy, the control of interest rates, and fiscal policy, government tax and spending. For most of the past thirty years monetary policy was thought so powerful that fiscal was almost unnecessary. But now monetary policy has reached its limit. The Bank of England knows it. The Federal Reserve knows it. So do most reputable economists. Monetary policy is maxed out. It is time to try something else.