Wealth: redistribution and interest rates
&gt; If we “do nothing” (\tau =0), inequality increases indefinitely.<p>No.  This is &quot;if we do <i>nothing different</i>&quot;.  Reducing interest rates are a policy.  But QE and lowering interest rates should have been <i>predicted</i> to have had this effect.  Central bank interest rate reduction lowers the cost of debt <i>for citizens who can afford low interest loans</i>.  that&#x27;s mostly financial sector orgs and individuals, who are, for example, using debt-based instruments for leveraged investment. Even a mortgage is accessible mostly to people already on the upper half of the wealth scale - the poor in SF, for example, are not benefitting from interest rate reductions.<p>The effect of increasing the M(2+) money supply by encouraging increasing outstanding loans by making them cheaper ALSO has the effect of making the cost of living more expensive for the lowest part of society, and also forces the middle class to engage in speculative investment as a dominant part of their retirement strategy, which is a subsidy for big business.  We should flippantly call this phenomenon &quot;trickle up wealth redistribution&quot;.<p>If we increase interest rates, in the short term a lot of people in the lower half of the economy are going to get poorer.  Many of them will declare bankruptcy (which is a good thing!), but in the long term it will break the cycle of indebtedness to the rich, if we take efforts to make sure debt risk is always assumed by the lender.