To be honest, I’m feeling rather stupid about not understanding until now how to make sense of the ever-changing rationales for the ever-changing demand for higher interest rates. As someone who started in international trade, I more than anyone should have known that specific factors, not Stolper-Samuelson, is usually the way to go.
For the 99.9 percent of readers who have no idea what I’m talking about: One of the landmark papers in international trade theory was the demonstration by Wolfgang Stolper and Paul Samuelson, way back in 1941, that the income distribution effects of protectionism typically swamp any efficiency considerations. If you said something judicious along the lines of “Well, protectionism might increase labor’s share, but workers will still end up losing because the economy will become less efficiency”, you were just wrong in terms of the standard model: if an economy imports labor-intensive goods, protectionism will raise real wages — end of story.
So trade policy should have big effects on the distribution of income between broad classes of players — labor versus capital, highly educated versus less-educated labor, and so on. But if you try to understand the political economy of trade policy, what you see is much narrower interests at play — not capital in general but the owners of textile factories or sugar plantations. Blessed are the cheesemakers, not any manufacturers of dairy products. And the right model to think about this is the specific factors model of trade, in which capital is temporarily stuck in a particular industry; in the long run it may be fungible, but lobbyists don’t worry about that.
So we’ve had a long discussion of the distributional effects of QE and all that, which are ambiguous but also, I now realize, irrelevant. Is QE good or bad for capital, for rentiers, whatever? No matter — it’s bad for bankers, because it leads to a compression of the net interest margin, the spread between deposit rates and lending rates. And that is why there’s so much agitation for rate hikes on the part of finance. Furthermore, while I don’t think institutions like the BIS are corrupt in any direct sense, they probably pick up by osmosis from all the bankers they meet the general prejudice against easy money, leading to increasingly baroque attempts to justify rate hikes despite low inflation.
Incidentally, this also means that the common claim that QE is a giveaway to bankers is the opposite of the truth; to the extent that journalists with close ties to bankers spread this story, it’s Orwellian. Remember, the Fed isn’t lending money at low interest to banks — banks, with their $2.5 trillion (!) of excess reserves, are lending vast sums at low interest to the Fed.
It’s all falling into place.