However my worry is that the economy seems to have become permanently dependent on low interest rates. Sure it won’t be zero but something like 1 % looks like a distant dream.
It seems to suggest that we have run out of ways to increase real productivity. A good example is the shale industry which will basically go bust if interest rates are like 3 %.
We seem to be in a new regime of lower economic growth, high asset prices and inequality. The real danger here is the political sustainability of this. Zero interest rates are an indirect pay cut via rents and mortgages. At some point asset owners will have to take a haircut.
But at this point, we're talking technology and society instead of economics. Will innovation continue, and are those innovations a big enough deal that they will continue to make our world more productive, wealthier, more successful? I lean towards yes, but it is not at all obvious. It is certainly possible that productivity growth stagnates, most countries catch up to a generally-developed level of output, and asset prices stagnate as temporary demographic bumps are smoothed out.
Growth is fundamentally tied to the availability of cheap energy. If you look at oil prices in gold you’ll see how it’s almost twice as expensive today.
We are also facing constraints on energy extraction due to climate change.
Every time oil prices spike shale oil comes online but the economy chokes on the price oil crashes and the shale producers go further into debt.
This may also be why a lot of growth is in the digital sphere which is far less energy constrained. Maybe future growth will be Virtual reality GDP :P
The only way I can be wrong is if someone invents a cheap fusion reactor or a cheap magical battery that stores endless amounts of solar energy. This is highly unlikely to happen.
Disclaimer: Very speculative thesis but I believe in it.