High (and Exogenously Set) Rates of Interest

It will now be shown that DRA resource depletion is in significant part caused by developed country policies that raise real long-term interest rates and that it could be moderated or reversed if these policies were. This interest rate argument asserts that rates of interest in the 1980s were excessive in the sense that they increased resource degradation by worsening the structures of investment, production, consumption, and resource management, and that these rates should therefore be reduced.

In May 1991 the World Bank summarized the position: “In the prosperous 1950s and 1960s, real long-term prime interest rates for prime borrowers stood at some 1 to 1.5 percent and short-term rates were even lower”. After an aberrant period of negative real rates during the rapid inflation of 1973-1977, “real long-term prime interest rates have hovered between 4 and 5 percent, and they appear set to remain at these levels or to climb even higher”; they have fully met that prediction in the 1990s. Such high rates appear to be historically without precedent.

In its discussion of the role of interest rates on resource depletion, the text asserts that

Item 0 - exogenously set interest rates have played no small part in DRA resource depletion,