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Compound Interest and Social Discount Rates

John Holbo on Greg Mankiw:

Compound Interest, the Doctrine of Equivocation, and Social Discount Rates — Crooked Timber: In a sense the problem is this: on the assumption that future people are people, too, the wonders of compound interest make it seem insane to do anything but save for five centuries hence.

Indeed. If long-term real interest rates are as Mankiw describes them, then either the future must be so filthy rich and so satiated with wealth that there is no point in saving, or it is profoundly irrational to consume more than bare subsistence today because the opportunity cost in terms of how much you are impoverishing the future is so large.

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