Courtesy of The Washington Post, this table below made me rather uncomfortable:
The real interest rates necessary to equate investment and saving at full employment are historically at their lowest points ever, and may often be unattainable given the bounds on nominal interest rate reductions.
For the first time in history we are experiencing zero, or almost negative, interest rates. The result is very low long-term real rates, sluggish growth expectations, concerns about the ability even over the fairly long term to get inflation to an average of two percent.
In other words, the world is demand-short, and globally, money is being saved with fear rather than being invested in creating production cycles and fuelling innovation. If monetary policy’s main challenge since the very term got coined was how to keep inflation below a certain target, for the first time ever the concern is regarding how to keep the inflation rate above a certain target, and how to make the world consume more, or at least at its present level.
Similar is the case with India. The Reserve Bank of India left its benchmark repo rate unchanged at a five-year low of 6.5 percent (source: Trading Economics). However, increase in consumption demand and higher public-sector capital expenditure led by investment in roads and railways would ensure adequate aggregate demand in the short run, and the effect may not be felt immediately. This is after all a growing inflatory economy.
Is this a mumbling about macroeconomics, charts, and big things, or is this something that you, the entrepreneur sitting at the coffee shop, can actually take something out of?
There is. In fact, there are two things.
The first one saddens me. We are not innovating even nearly enough. We are the economy, you and I. We form the markets. Money follows knowledge, innovation and the rational economic man (homo economicus). Yet, despite a declining interest rate, capital looks closed, and its holders are afraid to release it. We do what we can to change that, but you should too.
The second one makes me happier. There is plenty of available capital out there. For the first time ever, interest rates go below zero and you are practically being paid to temporarily access capital. That certainly brings in a new way of thinking.
If you have an idea worth chasing, there has never been a better time in history to fund it. Ever since the beginning of civilisation scarcity was something we used to live with — first scarcity of food and land, and then scarcity of capital.
Today, scarcity of capital is officially no longer. We have enough financial capital in the world already to form all the productive capital to meet our needs for housing, clothing, transportation, education, and healthcare.
You no longer need a fortune to deploy a server and test a new technology thanks to the cloud. You don’t even need to pay the cloud for full usage, but only for the period of active usage, thanks to AWS Lambda. All this makes even us, the VCs, suddenly look obsolete.
We are facing a new type of scarcity — the scarcity of makers and of attention.
Are you terrified of news of tech startups crumbling and investors looking away from India compared to last year? Don’t be.
The last time I checked, we didn’t build a system that slyly looked for a few great things to latch itself to, multiply itself, and run away. Capital always follows makers in good days or bad, and it has never been the other way around.
We have built a risk-taking, information-based economy where innovation is made possible for everyone. If that was the case a simple “almost innovative” photo filtering app called Prizma would not have raised $2 million less than a month after it was uploaded on Google Play.
While this may look like just another episode of us tapping ourselves on our shoulders and giving motivational speeches, world policy makers discussing a situation where a major recovery to the former levels of employment and growth and that stagnation may be the new normal we should get accustomed too, I tell you this – it was never about what the pandits and the econometrists say. It was never about economic models and movements of global financial markets.
It was about the enterprising individual. It was about the Wright brothers, who understood how birds fly and how to fly themselves. It was about Ford, who replaced horses with engines. It has never been about the herd when it comes to progress in the truest sense. It was about the lone inventor of penicillin, the lone maker of the steam machine and the lone maker of the first robot.
They were nowhere to be found around policy-making tables, but lost inside the forest, the basement, and beneath the water. They were far off from Bloomberg Terminals.
They made the economy we live today and the capital the maker next in line may be thirsting for.
There has neverbeen a better time to make. Make!
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)