‘The low interest rate is a clear market signal that we invest too little and are too frugal’

De Telegraaf
Erasmus School of Economics

The further the interest rates decline, the less it cost the government to get into debt. But instead of lending to invest in the economy, the Dutch State chooses to reduce the national debt. Why doesn’t the Dutch government invest more? ‘That is something I have been wondering about for years,’ says Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics.

‘The low interest rate is a clear market signal that we invest too little and are too frugal. You can’t say this often enough. But far too little is being done with it. In the Netherlands, many people find the low interest rate a problem, but they forget that the interest rate is a market price. It is a matter of supply and demand,’ says Jacobs. A low or even negative interest rate means that either little is borrowed to invest, or too much is saved. ‘And in this case it is both true.’

The decline in interest rates is not a phenomenon that arose after the financial crisis, or a consequence of the broad policy of the European Central Bank. Jacobs: ‘Interest rates on government bonds have been falling for more than thirty years. This is partly due to the ageing of the population, which means that people save more. Through increasing inequality in the world, as, on average, people who are richer save more. And through technology, which makes it cheaper for companies to invest.’

More information

Read the entire article of De Telegraaf, 10 Augustus 2019 (in Dutch).