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Jesper Rangvid, "How Low Interest Rates Change the World: Global Trends Caused by Low Rates and Emerging Factors Shaping the Future of Rates" (Oxford UP, 2025)
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- [02:07]
Jesper Rangvid
Welcome to the New Books Network.
- [02:12]
Geert (Host)
Hello everybody and welcome to the New Books Network. My name is Geert and I'm your host for Today. Now. Economics is not my field of expertise. I work on housing policy. At the same time, much of the problems we face in the field of housing are determined by External trends. There's birth rates, migration, cultural developments. And also many of the external trends are economic. Think of market shocks, material logistics, of course, the money supply. That's why I wanted to speak to Professor Jesper rangvid on his 2025 book, How Low Interest Rates Change the World. He signals the trend of consistently falling interest rates throughout much of the world and explains the causes and consequences. The present day housing crisis, albeit quite multiform throughout different countries, is strongly influenced by the trends described in the book. Professor Rangvid is an expert in the field of macroeconomics, pension systems and the like. He's a much heard voice in the public debate in Denmark and publishes in both Danish and English on all the things he finds interesting. Want to read more? Go to rangvid.com that's R-A-N-G-V-I-D.com blog HTML I hope you enjoy today's conversation. Hello everybody. I'm excited to introduce to you Professor Jesper Rangvid. Hello Jesper. Welcome to the show.
- [03:35]
Jesper Rangvid
Thank you, Gert. And thank you very much. I'm looking forward to this conversation.
- [03:39]
Geert (Host)
Great. So if. If it's okay with you, I'd like to start right at the beginning. What are interest rates exactly? And why are they important?
- [03:49]
Jesper Rangvid
Interest rates are important for, I would say for all of us. It's important for, yeah, households. That meaning. That's meaning us as individuals. When we for instance, need to buy a house, then most of others, these, we have to take out a mortgage. And the interest rate is what you need to pay to compensate the lender, the one who lends you the money to buy the house to compensate that financial institution for lending the money to you. So the interest rates determines the price of the mortgage and determines how much you can afford to borrow. It's also important for corporations, for companies, they often need to borrow to finance their investments. So when the interest rate is low, it's relatively cheap for firms to finance their investments. They can make new investments and thereby, yeah, the economy will prosper. And it's important for governments that often also borrow to finance their expenses. In many countries throughout the world at the moment, the governments, they spend more money than they collect in taxes and other types of revenues. They have deficits and they need to borrow to cover those deficits. And the interest rate determines that. So the point is the interest rate is the price of taking out a loan. And that affects the society in many different ways. The interest rate is of course not of course, but it is also the return you get if you lend out money. So it's also, for instance, when you save for your pension and then the interest rate will affect, influence the return on your pension savings and thereby for instance, the pension income you will have when you go on retirement. So the interest rate is really important in many, many, many, many different aspects of societies, of economic activity in societies.
- [05:52]
Geert (Host)
And so how are they exactly determined? So central banks are involved, but there's also the supply and demand. How does that work?
- [06:00]
Jesper Rangvid
And you're already there saying some, some interesting and important things. There are different, many, many, many different types of interest rates. There are, for instance, just to follow up on your question, there are the interest rates that central banks, they determine. So the, in Europe, the European Central bank raises all over the interest rate. In the US the Fed raises or lowers the interest rate and that's typically a very short interest rate. So that's an interest rate that financial institutions, banks, they pay if they borrow very short term, either overnight, one day or one week or so from the central banks. And that's usually not what we as ordinary people that we use that much. Again, if it's a mortgage, then it's depending on the country we are talking about. But it's at least several years that you borrow. And in some countries it's you know, 30 years or so. So they're much longer these interest rates. And these interest rates, they're then determined on, on, on the bond market. So, so that means that investors who are buying, buying the bonds, the mortgage bonds as they are called, the price of those bonds, which is what in the end determines the interest rate that you as a borrower has to pay. That will depend on the number of bonds that are being sold and how much these investors, how many bonds they want to buy basically. So demand and supply for loans is what really affects the interest rate in the end.
- [07:39]
Geert (Host)
So you also mentioned the bonds we spoke earlier this morning. But how is this present book, how is it related? It's kind of a twin to the 2021 book, right?
- [07:51]
Jesper Rangvid
I wrote a book in 21 on stock markets that mainly dealt with. Yeah. With stock markets and what determines stock prices and so on. And you can say, I mean that two, the two main financial assets that, that we have in the world are stocks and bonds. So, so you, you can save, you can invest in stocks and bonds, you can also invest in many other things, but these are really the main financial asset classes. And then I wrote a book on, on stocks and then I thought it would be interesting also to write after, after having done that thought it would be interesting to write a book on, on, on, on bonds. And what particularly triggered me was that there was really really one, one, one development that really, that really is the inspiring development of of of my book. And that development is that we have had throughout the last 40 decades or up until the pandemic. So that, that means from the early 1980s and up until, yeah, basically 2020, up until we had the pandemic, we have had falling interest rates, meaning lower and lower interest rates in basically all around the world. So in many, many, many, Many, many countries, U.S. denmark, Netherlands, U.K. sweden, Italy, etc. Etc. Etc. So basically in all countries we had lower and lower and lower interest rates. So in the early 80s interest rates, they were typically above 10%. In some countries there were 15%. In some countries that were 20%. So they were really, really high. And when we entered the, we had the, in 2020 interest rates, they bottomed out. And in some countries interest rates were even negative as I mean below zero, which was the first time ever in history that we have had negative interest forever. I look in my book, I, I have several different graphs and figures and tables and so on and they go 700 years back, several hundred years back, 700 years back. And we have never had negative interest rates before. So it was really, really weird basically. So, so that development that very strong, that very persistent, that very large fall in interest rates from, from, from 1980, 2020 is really what, what to some extent drives the book.
- [10:14]
Geert (Host)
Yeah, that's a fascinating trend. I, I was just wondering how, how, how can you compare present day interest rates with for instance, I mean Your book looks 40 years back, but how can they be compared with interest rates from a century back or longer? Because the people taking out the, the loans are so different. I mean consumer credit and especially housing credit is, is all around us now. And I guess century back that wasn't the case at all. It was just organizations borrowing.
- [10:48]
Jesper Rangvid
Absolutely. And governments and governments, companies, organizations and government borrowing. So you can say, I mean the interest rate, so to say has always been there. There have been interest rates for, for the last several millenniums, as I quote a study that goes back 5,000 years and, and, and, and, and, and looks at interest rates over the last 5,000 years. And, and of course the data quality is obviously very different today compared to back then, obviously. But, but, but in it's, it's, it's in its essence the interest rate is, you know, I borrow something today that is worth €100 or whatever currency we are talking about I borrow and when I pay back that loan at some point in the future, then I not only have to pay back the hundred, I perhaps have to pay back, you know, 105. And that means then the interest rate has been 5% because what you have to pay back is 5% more than what you borrowed. And in that way you can construct interest rates from, from, you know, from, from Sanskrit in Egypt, right? You know that you lend out a certain amount of corn and then when you paid back you had to pay back a little bit more corn and, and thereby you can back out an interest rate. So, so interest rates have always been there, but of course they refer to different types of, of borrowing and, and lending and, and, and different types of financial assets and, and, and contracts and so on. But but, but the price of taking out a loan mean, has been there for, yeah, for a while I would basically say.
- [12:33]
Geert (Host)
Where did this come from do you think? From the, the thesis of your book, it's about the last 40 years. What, what caused this, this consistent trend?
- [12:42]
Jesper Rangvid
Yeah, so, so, so, so, so, so so in my book I have different, you know, a book has different sections and my book has different sections and, and one of the sections is deal with how come that interest rates fell so persistently so much and basically in, yeah again in all countries or at least in all what we call, you know, advanced economies, industrialized economies, what label we, we put on those type of economies. And so say the first thing to notice is because it was a, a fall in interest rates in many countries, it means we need to look for global factors. So of course some local factors also influence some local interest rates. But this again, this persistent development was really an international, a global phenomenon. So we need to look for, for patterns that characterize developments in, in, in many many countries. And some of the things that, that, that, that, that, that economists and, and myself in my book, of course I really refer to when we should describe this fall in interest rate. And then it is for instance, demographics are very important because demographics, they determine how much we save and how much we need to borrow. So for instance, the fact that we live longer and longer, that our life expectancy goes up and it does so all around the world. And that means that if retirement ages do not go up to the same extent, then we need to borrow more. It also means, you know, so if you, if you, if you, if you, if you are 20 year old that want to save and then you expect to go on retirement at age 60 and then, you know, you save for 40 years if you go on retirement at age 80 and then you save for 60 years, so you're a little bit more patient in your savings. And that also influences the interest rate, economic growth, the rate at which economic economies develop also influences the interest rate. So falling, falling, falling rate of economic growth would influence the interest rate. And we have seen that over the past 44, four. 40 decades or the 40 years, these four decades. So really. So the demographic, global persistent demographic developments, global persistent economic developments are those things that, that, that, that caused the interest rate to fall so much.
- [15:03]
Geert (Host)
Do we, so yeah, you quote the demographic argument. Do we as say voting citizens thinking of public policy, can we influence this? Did we influence this or was it all weather and demographics and culture?
- [15:24]
Jesper Rangvid
To a very, very, very large extent it were developments that governments basically could not, at least not directly and at least not on the short horizon influence. So, so it really is this, you know, we live, we live longer and longer that is difficult for governments really to, to do something about. We get fewer and fewer children. So, so, so the rate of growth of populations also influences the, the interest rate. And it's again, you know, of course you may try to promote fertility and stuff like that, but I mean, it's difficult. Right? So it's really, you know, really persistent fundamental drivers that, that are, that are, that are not easy to, to change on the, on, on the short horizon are really those that determine these, or should we say the fundamental, the underlying level of interest rates. So it really was, I would say a consequence of, of, of, of of these types of developments and not so much, you know, that at one government did this and behave stupid in that way and the other government behaved cleverly in that way and so on. But it really is to a large extent these, you know, fundamental drivers of societal changes.
- [16:39]
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- [17:49]
Geert (Host)
Okay, so these were, this is what caused the, caused the trends. But they, they have big consequences. I, I, I think we can, if I look at the sections in your book, we can maybe pass them one by one. So first of all, there's a section on debt and low interest rates. What's the big consequence there?
- [18:11]
Jesper Rangvid
Because the interest rate is the cost of borrowing. It is again what you have to pay on top of what you have to pay back. I borrow $100 and I have to pay by a contract $5. The interest rate is 5%. So because the interest rate is the cost of borrowing and then it means that when interest rates fall, it becomes cheap to borrow. Simply that's the definition that is that it has become, over these 44 decades, over these 40 years, it has become considerably cheaper to borrow. And of course when it becomes cheaper to borrow, then there's a larger incentive to borrow. It's stock becomes cheaper to borrow. And we can clearly see in the data that again, global development societies have become considerably more indebted. So over this period we have seen households borrow considerably more, we have seen companies, corporations borrow considerably more and we have seen governments borrow considerably more. So it is so in around 1980, in the early 80s, if you take, if you take the total amount of all the debt in the world, or at least in all advanced economies, and you look at what's the level of debt compare and you need to compare it to something to track developments over time, to compare it to typically to the size of the economy, to gross domestic product, but basically to the size of the economy. And then it was so that depth total debt stood at around 150% of total economic activity. And in 2020 when interest rates were really, really low, that number had basically doubled. So now global debt amounted to more or less three times global economic activity. So it's really, you know, so, so, so, and that's a lot, that's a lot of money. It's a lot of debt. So I, so I really argue that governments and companies and households have become more adepted, not least not the only factor, but not least because interest rates have fallen so much.
- [20:15]
Geert (Host)
Yeah, I recognize this also. I'm from the Netherlands and here we also see in the housing market, for instance, that there is a very big rising trend of indebtedness, which I guess a bridge to your second chapter there you speak about house prices and the low interest rates. Of course you've illustrated the mechanism, but what have you seen here? Exactly.
- [20:39]
Jesper Rangvid
So, so, so, so, so, so, so the interest rate falls, it becomes more attractive to borrow. But of course we don't borrow just for fun. We borrow because we need some money today or we would like to have some money today that we can use to buy things that we can use to buy stuff. And again, as we talked about in the beginning, one of the biggest investments households make in their life, that is, that is buying a house. So, so, so, so when the interest rates falls, it becomes cheaper to borrow and then you borrow, households borrow to, to purchase houses. And that means that demand for houses go up when interest rates are low and that pushes up house prices. So so my second point in the book, the second consequence I point towards from these falling interest rates have been rising house prices. So we have seen a clear rise in house prices in again in many countries during this period where, where again simply caused by, among other things, of course, but certainly also caused by it's cheaper tomorrow, it's cheaper to take up a mortgage, I take up a larger mortgage, I can now afford a larger mortgage mortgage, I can buy a bigger house or I can pay more for a house. High sprite house prices, they go on.
- [21:58]
Geert (Host)
Yeah, makes sense. And, and so what about the stock markets? What happened there?
- [22:02]
Jesper Rangvid
And that's then the third consequence I point towards because, because lower interest rates will also cause stock prices to rise. And that, that is because a, a stock and as an equity ownership of, of a company, stock prices, what they are determined by fundamentally is if you buy a stock, if you invest in a company, it's because you hope of course you get some return. And what is the return you get? And that is that the company is going to do well in the future. So I buy a stock in a company because I hope that company would do really, really great in the future, will deliver high, high, high, high profits. And that means that the stock price today is determined by the value today of all the future earnings or the future profits of a company. And the way this then works is you take all these future profits and then you discount them back to today to find the of all the future profits of a company that determines the stock price today. And this discounting back of the future profits of a company. And that discounting is done via the interest rate or at least the interest rate influences that discount rate. And that simply means almost say mechanically almost that when interest rates fall and then the value today of future profits go up and that is a, an increase in stock prices. So, so short lower interest rates also raises stock price prices. And we have seen that then throughout the last, again the last we have seen we always see rising stock prices but, but during these last 40 years we have seen a very, very, a very large increase in stock prices such that the valuation of stocks has gone up quite consistent, quite gold. Quite a lot. A lot.
- [23:45]
Geert (Host)
When we spoke this morning, you, I mean your book looks at the long term but you also spoke this morning about recent instability in the world, global conflicts. That, that generates a lot of uncertainty and at the same time we see absolute highs across many stock markets. How does that work?
- [24:08]
Jesper Rangvid
Yes, and that is really a little bit puzzling to some extent that, that, that so many risks out there, so many risks out there obviously at the moment, so much uncertainty out there at the moment. And, and we have seen yeah, stock prices doing amazing basically at least in the particular in the US and, and, and, and that's important because the US Accounts for around two thirds of global stock market. So, so whether one likes it or not, the U. S really is important when we talk about stocks. And, and, and the reason there is that we have had these, these few companies that are heavily affected by artificial intelligence. And, and, and here I talk about companies like Apple, Nvidia, Amazon and, and, and, and Microsoft and, and so on. Tesla and the Broadcom, the like as these few companies that are, have become incredibly large as enormous companies. And, and the reason why they have become so that investors expect that they will benefit a lot from artificial intelligence. So it has really been a story about artificial intelligence basically dominating all the other risks that we can think of almost and has really been driving the stock market to a fascinating extent. And of course at the moment there's a lot of discussion can this go on? And will they really deliver that profit that people expect or investors expect and so on. But at least until now that's, that's what has happened.
- [25:42]
Geert (Host)
Remarkable indeed. Then there's also well the there, there, there's the inequality, the, the inequality issue. You also state that there's, that there's a strong link between low interest rates and rising inequality or changes in inequality. How does that work? Is it, is it the Matthew principle that the people who, who already have will only gain more or is there a different mechanism?
- [26:10]
Jesper Rangvid
It's the Main, it's the main mechanism and that mechanism is, you know, so we just discussed and talked about that falling interest rates can push house prices up and can push stock prices up. And it's, and it simply is so that, you know, in order to buy a house, you need a certain income. So, so we can see in the data that those that are able to buy houses are those that have, you know, relatively high income. And we also clearly see in the data that among the parts of the population that hold stocks, it typically is the more wealthy individuals, the more wealthy households that, that invest in, who invest in stocks. And that then means that when the interest rates fall and house prices and stock prices, they, they rise, as we discussed earlier. And then if they are owned by the already wealthy, and then they become even more wealthy due to falling interest rates. That is the definition of increasing equality, that some parts of the population, they own more than other parts of the population. So I argue that the falling interest rates have been a factor behind the rise in inequality that we have had throughout the last. Yeah, throughout the last 40k hours up until the pandemic between 80 and 2020. I mean, of course, and again, if I may say so. Okay. I mean, of course I'm not saying in the book that now we have talked about debt and we have talked about house prices, stock prices, and now the consequence of rising house prices, stock prices for inequality. Of course, I'm not saying that the interest rate is the only thing that have affected these things. That's not the point of the book because of course other things also influence all these different things and inequality, tax policy influences a lot. We have had countries that have lowered the highest marginal tax rates that really could at least influence inequality. There are many other things that could influence inequality. But the point I'm making is that the interest rate is at least one factor. And for some of these developments, even an employee important factor. There are papers, academic papers out there that argue that around, around 3. Third, I said 75% of the increase in inequality in the US has been due to falling interest rates. So, so it's not only me who gets this idea. It's also backed up, you know, by research and so on and of course there are discussions and so on. But, but, but, you know, yeah, so that, that's the, yeah, that's the point.
- [28:43]
Geert (Host)
Yeah, makes sense. Also, if, if money is cheap, I guess it also incentivizes, well, risk taking, so to say you see that in the financial sector, but also I guess in the real economy. How do you view this, this development.
- [28:58]
Jesper Rangvid
So, so, so, so the interest rate is the cost of borrowing, but again the interest rate is also the return if you invest your money, if when you put your money in the bank you get some kind of interest rate sometimes at least on your deposits. And if you buy a bond, then you get an return from, from, from buying that bond, which is the, the interest rate. So the interest rate is also the return you get when you invest your money in, in bonds and, and similar assets. And then again when the interest rate is low. And then that means that the interest rate on, on these types of assets is low and the return is thereby also low. And of course if you're thinking about I have my money, I want to invest them and if you only get a relatively low return on the bonds and, and then you might think about I'm not satisfied with that, so what can I do? How can I generate an even higher return? The way you can do that, at least where you can get a higher expected return, that is by investing in more risky assets such as stocks or real estate for that matter. More risky assets. So, so, so we have seen a clear tendency that in particular during the years before the pandemic when we had these really, really, really low interest rates in many countries, that many investors, they took on more risk making the financial sector. Yeah. More, more risky. We had the financial crisis, we had the global financial crisis in, in 2008. And and, and, and, and, and and most people associate that the start of the financial crisis for sure had something to do with, with the interest rate developments that we had back then. So, so before the financial crisis were one of the causes of the financial crisis. You might.
- [30:43]
Geert (Host)
These, these different developments, do they worry you? You wrote the book with the reason and it's not just technical. But what are your main worries? And are there perhaps developments here that on the surface look worrying but are actually no problem in your opinion? How do you view this?
- [31:04]
Jesper Rangvid
I'm not a, I'm not a politician. So so, so, so, so, so so so so that's of course important to stress I'm an economist and, and so on. But I mean as a, the point in my book is as a. The reason 1/ ARC 1 point I wanted to make in writing the book is, you know, very often we, we cheer low interest rates. The central bank has lowered the interest rate. That's fantastic because if you're a house owner, then your house becomes worth more. Wow. People and newspapers, right? And, and low interest rates will help economic activity and so on. And that's all good. My point is to say that when we have, when you have such so large changes in interest rates or so so long periods of time, then it actually also has some, what many people at least would view as, as negative consequences. A more adepted world is of course a risk because as I mean, debt has to be paid back at some point. You borrow and you have to pay that debt back at some point. At the moment we are clearly seeing some countries having very large amounts of debt. We talk about the US not least the world's largest economy, having an enormous amount of public debt. We have discussions in France, obviously that has a very large amount of public debt. Italy has a large amount of public debt, which is causing a burden on public finances because of course, these debt servicing costs, they have to be paid and so on. So it's an issue, of course. And even if you have too much debt, then at some point you might even run into a crisis. We had the Greek crisis 10, 15 years ago where the Greek economy or the Greek government had borrowed from us. And at some point investors said, now we don't want to finance that debt anymore. And you have a very severe crisis in Greece. So of course debt can be a huge problem. Rising house prices, is that good or bad? And that depends, right? If you own a house, it's great when the value of the house goes up, but if it's your children that want to enter the housing market and they cannot afford to buy a house, and then that's a problem. So there are some issues there, of course. And, and at least, at least I want to make that argument, at least make, make that clear, that, that, that, that how high house prices are not always good because there's somebody that at some point need to buy a house, of course, and for those people, that's not so great. And the inequality, I mean, again, as, I mean, because it is very, you know, it's a very heated topic, obviously, but, but I mean, I think most people probably kind of agree on that. Too much inequality at some point is not a good thing. And then I'm not saying, of course, that inequality is too high or too low. I'm certainly not going to that discussion. Other people should take that discussion, politicians should take that discussion. But my point is to say one of the reasons we have seen this rise in inequality, which has been of course, a very, very, yeah, again, very heated debate in some countries, is that the interest rate has fallen. And as we talked about in the beginning, that falling interest rate is actually difficult to do something about because it's due to these really, really, really big societal changes that will live longer productively. Growth is lower, and so on. Zootopia 2 has come home to Disney.
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- [36:01]
Jesper Rangvid
in
- [36:01]
Geert (Host)
the last part of your book. You try to look into the future and you do not conclude about where interest rates and related developments are going. But you do give a few arguments in favor and against how do they pan out against recent developments in interest rates. And how do you feel the future
- [36:23]
Jesper Rangvid
will develop as a cement? So the future is uncertain. That's clear. So, so the, the way I structured that part of the book was because the interest rates are infected by just so many things I said. They're affected long term about what we talked about demographics and, and productivity growth, economic growth, levels of depth of garments, investments and you know, so many things at the moment. The Iran war, inflation and I mean there's just so many things that afflict that affect, that affect interest rates. So, so to wrap my head around that, what I did was I kind of, you know, said what, what what? When I look into the future, what type of developments might cause interest rates to be relatively low in the future. And what types of development might cause interest rates to rise in the future, simply, you know, to structure the thoughts and to structure the theories and, and so on. And then I point towards some, you know, things that yet, you know, could make interest rates be low in the future. And basically these are continuations of developments we have seen for. Yeah, again, the last 40 years. So what we talked about in the beginning, that the fact that we will live longer and longer, the fact that we get fewer and fewer children, the fact that productivity growth probably not will be so high in the future, these things that caused interest rates to fall over this period, most of them, whether you like them or not, and so on, at least when you make projections, and most of them they will most likely stay. And that means that they will, they will, they will tend to keep interest rates relatively low. And then on the other hand, there are some developments that, that, that could push up interest rates. And these are things like, again, economies that are very indebted and where the trajectory clearly is that they would just become even more indebted because. Because it's difficult to do something about these fiscal deficits, not least that characterize some countries. So very high levels of debt in some countries could push up interest rates. At the moment, of course, we talk a lot about AI and we talk a lot about how AI is going to influence everything almost, but, but here we talk about economy and interest rates and so on. And there's also a lot of discussions about how AI will influence economic activity. And if, and here I really, really stress if, because there's so much uncertainty about of course, the effects, ultimate effects of AI. But if AI actually really increases productivity growth, as I mean, really increases how. Yeah, how productive are companies, then that might actually to very high or higher economic growth and that might push up interest rates. So, you know, there are so many things out there, right? And some of them point in one direction, some of them point in the other direction. Of course, at some point then I mix all this together, my head and I use models and I read papers and I am academic, etc. Etc. Etc. It's not just that. I just mix a little bit of things up in my head. No, no, as I mean, but in the end, to make a kind of, you know, statement, I think that interest rates will be relatively low going forward, but not as low as the period we had before the pandemic where again, interest rates in many countries were around zero or so. So, you know, so that's, that's Kind of, you know, where I am as a. So. So you can basically say, I think there will be lower than our historical average. Think so. And here I'm not talking about next year or the after. I'm talking so. So what is the long term, you know, equilibrium level of interest rates? I think it'll be relatively low, but not as low as before the pandemic.
- [40:09]
Geert (Host)
That's kind of where what happened during the pandemic? Because the trend you described from 1980 to 2020. But what happened during the pandemic? What caused the volatility there?
- [40:20]
Jesper Rangvid
Yes, so what we had. So right after the pandemic, we had this very large spike in inflation. So in 2122 we had these amazingly strong increases in inflation where in many countries inflation hit 10%. Right. And when inflation goes up that much, then central banks, as we also talked in the beginning, central banks, they raise interest rates and therefore we had a very clear increase in interest rates in most countries after the pandemic. Right. And it has been difficult to bring back inflation down to target. After the pandemic is, of course, it's not 10% anymore. But for instance, in the US they want to achieve 2% inflation. That's their inflation target. And since the pandemic, inflation has not been 2%. The last couple of years it has been around 2 and a half, 3%. They have not been able to bring down inflation to where they want it to be. And for that reason interest rates have also been higher than before the pandemic. Pandemic. So that's at least one important thing.
- [41:22]
Geert (Host)
So the trends you described, they're global, but are there any local, regional, national outliers? And also you go in, you recently translated the book into Danish. That's your home country. How is Denmark different?
- [41:42]
Jesper Rangvid
Denmark is a very small country. It's where I'm from, as you say. So thank you. So that's why. Yeah, that's of course interesting for me as a Dane, but not necessarily interesting for many other people. But, but anyway, it's a very small country. So that means that most of these developments that I describe, they are basically exactly the same in Denmark. More or less exactly the same. But. But all countries, you know, have some, at some points they experienced other things than. Than, you know, other countries. In Denmark it was so that in the late 70s, Denmark borrow a lot of money. So, so, so really, really a lot of money. So, so, so. So in Denmark the then become heavy. It became heavily adepted in the late 70s. So interest rates, they rose very Much in the late 70s and Denmark much more than in other countries because we were so indebted. So that's, you know, one of these idiosyncratic things that, that sometimes happen. Again, we talked a little bit about Greece, Greece earlier, the Greek sovereign debt Crisis in between 2010 and 2012. That was also a crisis in one country. Right? One country did something different than other countries in Greece. Again, it was a lot of debt that they built up, government debt, sovereign debt, and they had a debt crisis in Greece and so on. So some countries again behave differently than other countries at, along some dimensions. Inequality has increased the most in the U.S. among, again, at least among advanced economies, it's the most inequal economy. All, all, most, most countries have seen rises in inequality, but it has been even more in the US and so on. So of course there are always outliers. But, but these, I would say the trends and the overall developments, they're very, they're very often, at least when it comes to interest rates and, and their effects, they're quite similar actually across countries.
- [43:45]
Geert (Host)
Say you're a national government in the European Union and say you're dealing with, I don't know, either housing prices or you're dealing with inequality issues. Is there because this is, the interest rates are a main factor in these problems and the interest rates for a large part, at least the, the parts that we can actually influence are mostly on the European level, whereas the responsibility, for instance, for functioning housing market and also the inequality in the social situation are mostly national, national competent competencies. How do you, how do you view this? What's the. For national government? What's the, the, the right level? Should we be lobbying? Should we try other, other routes?
- [44:44]
Jesper Rangvid
No. So thank you for that question. That's a very important question. Of course. So, so again, the point in my book is to say part of the rise, for instance, in house prices has been due to, to, to the falling interest rates. That's really, that's really what I want to say. And, and that means, and again that, and, and that that factor is difficult for governments to influence. And I think that is really, I think, at least, I think that's an important insight, an important lesson that needs to be learned. Then next step then. Okay, when we then determine that that's the way it is, the next step is from a policy point of view, do we now believe that house prices are too high or are they too high in some areas of the country and has it become too difficult for parts of the population to enter the housing Market, for instance. And then the consequence of that would be, yes, okay, then we need to do something different. As, I mean, we need to. Then we need to make a decision, a deliberate decision, because we can probably not change the interest rate because that determined by all these many, many things that we talked about, how many children we get and all that, so that we cannot influence. So we need to do something different. And that's then a political decision. We depend on the country we talk about and on all that and all that and all that. So for instance, do we need to change the taxing of gains, house price gains? It's one thing one could do as one political choice that you say, if house prices, they have increased a lot and then you need to pay taxes on that or even higher taxes on that, that should, you know, that should reduce house price increases. If you have to pay taxes on your gains or even higher taxes on those, on those gains. And it, you can, then that will be money to the government. Right. And then you can redistribute that. It's one thing, you know, I'm just saying, you know, then the important thing is that you recognize that the house prices have increased for some reason. And then you need to think about what kind of policies. If I want to do something as a politician, what kind of policies should I then.
- [47:07]
Geert (Host)
So I think we've covered quite some parts of the book. I would be particularly interested still. So you're quite prolific in the public debate as well, both in the English language and in the Danish language. You're an expert on pensions, macroeconomics, all these. What's next for you? What's your. Is there another book that you're thinking about or a big research project?
- [47:40]
Jesper Rangvid
I am thinking about a next book, but the way I write, if I'm, if I may just say that first. So, so that. Don't expect it will come tomorrow because the way I write is that I don't want to stress myself. So, so, so, so, so I have no timeline. So it's, you know, sometimes I have one month where, you know, we can, then I produce a lot and then there might be, you know, five or six months where basically I have no time to write. So it, it, so it's. Yeah. So I will never be an author that, you know, publishes a lot of books. I can't imagine that. But I think it has been extremely rewarding, actually, if I may say, for myself at least to write down. So as I'm thinking about a next project and without revealing too much, it will be about Europe and the US So that, you know that at the moment we have a US President who clearly does not like Europe. I think, I think that's okay to say. I think that's at least what he, I think it reveals that he is not a great fan of Europe. And, and, and, and we have European politicians also discussing that Europe is, you know, just, you know, a lost continent almost. And I want to make at least some kind of perspective on that. Uh, this debate about Europe really, really, really losing out to the U.S. of course, there are certainly certain elements of truth in that, I actually do think, but I also think that the, that the, the truth is a little bit more nuanced. So, so, so that's what I'm working on the moment. And then let's hope that I finish it. I hope at least that I will finish it someday. But, but around that, the debate around, you know, is there a future for Europe relative to a future for the
- [49:34]
Geert (Host)
U.S. so, yeah, no, I hear what you're saying. You say we as Europeans can be sort of hopeful and sort of proud despite some of the negative aspects that of course, are visible when compared to the US So I guess that's a, that's a great note to end on. Allow me to thank you for this talk today and I guess we, we can be looking forward to your new publications. That's all for today. Thanks so much, Jasper.
- [50:02]
Jesper Rangvid
Thank you, Geert. It has been a pleasure.
- [50:05]
Geert (Host)
Thank you for listening to this episode of the New Books Network.
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