[caf]

So the point is that in the past, it didn't take negative interest rates in order to do that, because people overall seemed to naturally have a significant preference for current consumption (+ve time preference). Another way of putting this is that in aggregate, people wouldn't lend money even risk-free for less than a decent rate of interest (the idea of a 'natural rate of interest').

The hypothesis in the article is that the reason near-zero and even negative interest rates are seemingly required to give the same kind of nudge now is that the underlying preference for current consumption has weakened substantially. The other side of this coin being that people will now happily lend money for a much lower rate because they now value future consumption relatively more than was previously the case (the 'natural rate of interest' has gone down).

[bubble_talk]

OK, sorry, now I understand.

>>the underlying preference for current consumption has weakened substantially

I have a feeling this is a rabbit hole I don't want to go down :-) - but has the underlying preference for current consumption weakened substantially because of (the author's claim) that people are living longer after retirement, or is it because people feel current consumption isn't giving them their money's worth? When you hand in your dollar, you expect to receive something worth that dollar.

In other words, if people suddenly woke up tomorrow and started accepting gold as currency, will the preference for current consumption be as weak? Or will it return to the previous levels because it is easier to see if you are getting your "unit of currency"'s worth? To be clear, I don't know the answer. But if it is the latter, then people's time preferences may not have really changed.

[caf]

Do people naturally have a better sense of what a gram of gold 'should' buy versus a $50 note? I'm only going on personal experience here, but I doubt it.

Here's another possibility, though: what if a lot of the consumption that was stimulated since the GFC was really capital expenditure brought forward - things like households upgrading and replacing their durable goods - replacing that dodgy fridge a little earlier than was planned, that sort of thing? Eventually that well will run dry, and households might well start saving instead of buying concert tickets or whatever.

[Double_Cast]

Time preference is a comparison between the present and future. So the relevant factor is the time differential, rather than the value at any particular point in time. The relevant question is not "does a dollar bill represent at least $1 of utility?". The relevant question is "does a dollar bill have more utility today than tomorrow?" Eg. suppose we're in the midst of hyperinflation. Any savings I have are practically worthless today, and also are worth less tomorrow than if I'd spent it today.