We may not need more products and services, and even if we believe we do, we may not be able to go deeper into debt to buy everything we desire. As a consequence businesses may find it increasingly difficult to make a profit. Perhaps enough is enough. The writing is on the wall. The financial crisis of 2008 can be seen as a warning sign.
The crisis happened because people couldn’t pay the interest on their debts. There is too much debt and too much interest needs to be paid. This nearly brought down the world financial system as well as the world economy. If there had been fewer debts, and if interest rates had been negative, this would not have happened.
Interest rates have gone down in recent decades. In some wealthy countries they neared zero in the aftermath of the financial crisis. Most people think they will go up again. But what if the opposite happens? What if negative interest rates become normal? That will turn economics upside down. Scarcity is the foundation of economic thinking. It is the belief that we never have enough and and more businesses to make more stuff.
It is a strange belief indeed. But what has this to do with interest rates? If we need more stuff, we need more businesses, so we need investments. To make these investments, we need savings. And to make people save, we need interest. Consequently investments need to be profitable to pay for the interest. But if we don’t need more stuff a lot can change. There would be abundance instead of scarcity and we do not need more savings but people will save more because they don’t need more stuff.
And that can push interest rates further into negative territory. It may happen first in wealthy countries where many people already have enough. Investment money will then look for more profitable alternatives and move into poorer areas. In this way developing countries can build their economies too. And the investment capital for making the economy sustainable may become available. To make that happen, interest rates in wealthy countries must be allowed to go as low as possible, and below zero.
This may kick off an era of unprecedented peace and prosperity. If people desire less stuff and there is more money available for other things. It may be easier to care for other people that aren’t so fortunate. It may be easier to combat crime as there may more money for the police force. Being a criminal doesn’t bring a lot of benefits because conspicuous consumption is frowned upon. That would be a completely different world. And it may be just around the corner.
Featuring image: Slums built on swamp land near a garbage dump in East Cipinang, Jakarta Indonesia. Jonathan McIntosh (2004). Wikimedia Commons.