Low Rates Drive Financialization

When the central bank keeps short‑term rates persistently low, capital flows into financial engineering, debt layering, and asset‑price bets rather than business capital expenditures; over time this raises inequality, inflates asset prices, and can depress productive investment despite cheaper borrowing. The argument rests on the observation that non‑residential investment has shown little sensitivity to policy rates in recent decades while asset prices have been highly responsive. — This reframes interest‑rate policy as not just a tradeoff between inflation and unemployment but as a lever that shapes the economy's balance between finance and production, with implications for growth, wages, and inequality.