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Election posters from the CDU and FDP in September 2021 near Baiersbronn
Photo: Goldmann / imago images / Manngold
It is one of the iron laws of democracy: In the last days before the holy ballot box, the verbal contributions lose their depth.
The lobby, which is friendly with the respective party, screeches that if the other party chooses, bad times will come. Leading candidates come up with reports in which, shortly before the election, terribly independent scientists come to the conclusion after a completely impartial examination that what the party is proposing is by far the best there is. Our beautiful homeland, with its many beautiful landscapes and helpful people, turns into a lousy high-tax country in the ardor for argument. And global-macroeconomic chains of effects are sometimes reduced to sets of ideas that are more like a slab of concrete in their complexity: tax sinks-for-economy = good-for-economy = good, so good. To ask?
It is reassuring that the ability for advanced thinking usually increases again when chosen. In view of one or the other aberration in the intellectually plummeting final election campaign, this is urgently needed.
What can go wrong with all the hasty promises can be shown using the example of a demand that is currently quite popular in Germany: that interest rates must necessarily rise again - because otherwise our poor savers will continue to be expropriated (that is nonsense, but it doesn't matter).
Well-known economic experts like, let's say, Friedrich Merz and Christian Lindner say something like that.
Then mostly to scold the angry European Central Bank.
The problem starts with the fact that that ECB - based on what was once German efforts - is incredibly independent, meaning that even German politicians cannot easily bring about higher interest rates.
Interest rates have been falling since the eighties
The matter becomes confused by the fact that behind the low interest rates lie more complex economic things. The historic decline in interest rates began in the early 1980s. The ECB didn't even exist then. Above all, there are some indications that one can wish for higher interest rates, but then should not necessarily relieve the wealthier as well, as the representatives of the high interest rate camp tend to do. That could go wrong economically.
A recently published study by three US economists suggests that the reasons for historically lower interest rates lie completely differently than in the shallow election campaign sand. The scientists from the Universities of Princeton, Harvard and Chicago investigated on the basis of a number of data on the financial situation of consumers how it could happen in the USA that normal interest rates rose in a fairly clear trend of almost six percent in some cases in the 1970s recently only dropped between zero and one percent.
Finding one: If interest rates have fallen that much, it has a lot to do with the fact that all in all more savings have been made over time - at least in terms of the amount of money that was needed for investments. And when the supply of money increases, the price, i.e. the interest, decreases. The question then is rather why so much more was saved or why investment capital was available.
This brings us to the study's greatest gain: The trend towards falling interest rates coincides quite clearly with the fact that the top earners in the USA have gained significantly more income than the rest of them since the early 1980s - in other words, with a massive redistribution all the way up in the sense of the then prevailing Reaganomics doctrine.
Since then, this has not only led to the well-known social tensions, but from a macroeconomic perspective, it has also shifted the situation on the capital markets and in saving.
As Atif Mian, Ludwig Straub and Amir Sufi calculated, the top ten percent of income earners in their respective age group have a savings rate ten to twenty percentage points higher than the average of the remaining 90 percent.
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And because these top ten percent have gained a lot more income than everyone else since 1980, the group also saved impressively more - which is significant given the large proportion of total savings.
After all, according to the researchers, the share of top earners in the total income of their age group is 15 percentage points higher today than in 1980.
If you put both together - a high propensity to save and strong growth in top incomes - according to the calculations of the three economists, between 1995 and 2019, believe it or not, 30 to 40 percent of what was saved privately in America was due to the shift in incomes can be traced back to the high-saving rich - with a corresponding effect on interest rates. The savings boom among top earners is likely to be one of the main reasons why interest rates have fallen so sharply since then - at least more than the occasional assumption that it could be because the many baby boomers are saving so much. Not verifiable.
Now the gap between rich and poor in Germany may not be (quite) as dramatic as in the USA.
The basic finding also applies here: Here too, the majority of our savings come from the rich;
the top percent has a much higher savings rate than everyone else at around 35 percent;
and peak incomes have grown significantly faster than any other in recent years.
Even the Bundesbank realized years ago that the upward shift in income alone led to a significant increase in the savings rate in Germany.
Top earners who can then save even more
If that's true, it could lead to pretty nonsensical phenomena in real life after the federal election - at least when people get something to say who want higher interest rates, but also provide relief for, well, top earners as part of their program; and if possible no further national debt at all.
Briefly add one and one together, and just assume: If, under a new finance minister, the solidarity surcharge is also abolished for the remaining ten percent of top earners, this means that said top income earners will in future add around ten in total have cute billions more euros. In view of the double-digit average savings rates in the wealthy class, it can be assumed that the vast majority of the additional money will then be put aside - in other words, several billion additional billions will be saved in the country. Not good if you actually want to ensure higher interest rates.
Then the interest rate will be lower than before.
And the lower, the more a future finance minister should bet on incurring as little debt as possible with the state and quickly returning to the debt brake requirements - which in fact means nothing more than saving more than less for the sake of the state.
Interest down.
Nightmare for savers.
Heaven for debtors.
You just have to know what to choose.
