Rate Disparity Book

Rate Disparity

Why Interest Rates Differ

This website is dedicated to my central thesis about interest rates, that interest rates vary for many rational reasons that are not effectively described as "risk".

Much like difference in wage rates and profit rates, interest rates vary depending on a number of factors:

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The Old Way: Risk Adjusted Present Value

The old way of thinking about interest rates is centered around doing present value calculations of "cash flows". "Cash" is just a shorthand for things priced in cash that are immediately liquid.

The issue with this is that it requires predicting the future across arbitrary and uncertain time horizons, using historical observations where it is difficult to disentangle a robust trend from selection and/or survivorship bias.

TODO <a>Rate Risk and Gambling</a>

The New Way: Adaptive Value Growth

Adaptive value growth is the idea that things can grow at different rates, and that is generally okay, although things that grow much faster or slower than average, tend to be symptoms of poorly managed resources or reckless disruption.

Adaptive vs. Competitive Equilibrium

Where I am in Economic Theory: MMT informed, in a Post Keynesian tradition

It takes a lot of work to thoroughly understand the history of economic developments, I cannot say I am an expert on this history, although what I have learned from post keynesian economics makes sense to me, and in my opinion provides a better foundation for thinking about market and political process interact to develop prices, property, and social hierarchies.

In many respects Post-keynesianism is hard to pinpoint, it is best described as a tradition of many (now heterodox) economists, who rejected what they considered to be flawed and biased modeling.

MMT has the benefit of being very straightforward in its key theory ideas, most importantly presenting the Job Guarantee as the most basic and universal example of price anchoring. Price anchoring is an alternative approach to currency peg or "backed" currency, in that it only guarantees one direction of exchange, and not two, and proponents argue that this makes it more robust and resilient.

There are many basic ideas essential to an MMT framing, such as accounting identities, endogenous money, a consolidated view of government finance, and asserting an operational view where spending comes first, and then taxing comes later.

MMTers mostly focus on this "framing", and yet, I think framing should not be confused with theory. Where theory involves testable propositions, framing is often simplified heuristics to make the theory easier to understand.

While MMT is an important part of my thinking, I consider the economic issues of interest, inflation, money, and employment, too important to limit to one framework. Much like mathematics has different branches of valid theory and inquiry, I hope to see the "framing" part of different economic schools develop into valid deductive systems that can be studied independently, with clear assumptions and simplifications, such that they are not inherently contradictory.

Optimizing Money vs Optimizing Life

Money is a resource. Like all resources, there are costs to acquire it, and benefits from holding it. In this respect, earning more money than you need to prepare for contingencies can be considered wasteful.

Money always comes with costs, even if it is earned through interest and not labor.