Low Rates Leads To Monopoly Capitalism

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by Dave

A fascinating post by Wolf Richter, quoting an NBER report/model that found lowering rates too far, for too long, gives an undue advantage to the market leader.  This reduces competition, which in turn reduces productivity, and also ends up concentrating wealth.

The rich get richer.  No more competition.  Capitalism turns into crony-monopoly-capitalism.  Big guys eat little guys.  Productivity falls through the floor – if you don’t have competitors, there is no need to be competitive.  Just harvest, and harvest, and harvest…

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Study here:  www.nber.org/papers/w25505

Support for the model’s key mechanism is established by showing that a decline in the ten year Treasury yield generates positive excess returns for industry leaders, and the magnitude of the excess returns rises as the Treasury yield approaches zero.

Wolf’s article here:


A reduction in long-term interest rates tends to make market structure less competitive within an industry. The reason is that while both the leader and follower within an industry increase their investment in response to a reduction in interest rates, the increase in investment is always stronger for the leader. As a result, the gap between the leader and follower increases as interest rates decline, making an industry less competitive and more concentrated.

When interest rates are already low, this negative effect of lower interest rates on industry competition tends to lower growth and overwhelms the traditional positive effect of lower interest rates on growth.

This produces a hump-shaped inverted-U production-side relationship between growth and interest rates.


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