Re: poly: Why interest rates may stay low

Hal writes:
>It appears that Robin suggests two reasons why economic growth rates may
>remain near 2-3% as they have historically. ...
>More importantly, the prospect of future increases in growth will attract
>capital prematurely, forcing wasteful expenditures on immature technologies
>in a desperate effort to win the race to new technologies. This premature
>investment will dissipate some of the future potential profits, as
>R&D funds are spent inefficiently. ...
>is that investment will flow to the company at an earlier point, such that
>the net result is that the stock price increases at 3% a year.
>In this interpretation, the anticipatory effect does not reduce the actual
>rate of growth due to technology, but rather the future growth is reflected
>ahead of time as increases in the price of productive assets. The net
>result is that these assets do roughly increase in price at historical
>rates, but that the actual economic output can increase much faster.

The "wasteful expenditures on immature technologies" I'm concerned about
are not people paying a lot for the price of a stock, but people starting
new companies with "wasteful" plans, and old companies taking on "wasteful"
projects. I'm talking about real investment, rather than paper trades
of one security for another.

Let me try again in another message to communicate my point.

Robin Hanson
hanson@econ.berkeley.edu http://hanson.berkeley.edu/
RWJF Health Policy Scholar, Sch. of Public Health 510-643-1884
140 Warren Hall, UC Berkeley, CA 94720-7360 FAX: 510-643-8614
Received on Tue Mar 3 23:40:49 1998