Interfluidity attempts a model of persistent negative real interest rates based on income inequality:
Suppose that land to grow wheat is scarce but labor to farm and bake it into bread is abundant. Land-owners and laborers are paid their marginal products, which at the limits of land scarcity and labor abundance means that land-owners receive approximately all the bread and laborers receive approximately none of it. Suppose that people prefer a bite of bread now to a bite of bread later, but that in each period, no individual can eat more than twice what their share of total output would be if total output were evenly divided. Land owners at full gluttony can eat no more than a small fraction of potential output, and they cannot store the surplus. Technology and population are stable, but land owners face negative real interest rate. There are laborers who would be glad to borrow the surplus bread, but they have no capacity to repay. The real interest rate on the bread lending market would be -100%.
I find this model confusing. How is population stable? If the workers are getting 0% of the bread, they will not work. If they are getting close to 0% of the bread, they will starve to death, and then labor will no longer be so abundant. (This is, by the way, a close-ish description of what happened to the economic structure of medieval England after the Black Death. It is fascinating to read how the sudden dearth of labor completely upended the old economic hierarchy, impoverishing the aristocrats and fattening the purses of the peasants. The aristocrats sued for the enforcement of the old laws, but it did them no good; the peasants still didn't show up to work their lands, which made their vast landholdings suddenly worth much less.)
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