American economist Sumner once told a fable: A and B formulated a grand plan, but completely ignored the negative impact that the plan would have on Mr. C. Sumner referred to Mr. C as the 'forgotten one', a 'victim of reformers, social opportunists, and philanthropists', and also one of the costs in' at all costs'.
In the global economic landscape of the 21st century, this fable has received astonishing real-life echoes.
When central bankers (A) launched a decade long policy of ultra-low interest rates and initiated unprecedented massive quantitative easing to rescue banks (B) that were on the brink of collapse during the 2008 financial crisis.
The visible effects of this experiment are evident and widely acclaimed: it quickly stabilized financial markets, eliminated deflationary fears, and significantly reduced unemployment rates. Central bankers are able to claim that they have successfully played the role of "firefighters".
But is this really a Pareto improvement where no one is harmed, only people benefit? What are the less obvious long-term consequences that need to be foreseen?
Under the constant propaganda of Trump style politicians, it seems that interest rate cuts have become a panacea for saving the economy, while Powell, who refuses to cut rates, is a villain
Edward Chanceller published the book "The Price of Time" in 2022, proposing a less popular view that long-term cheap credit hindered Schumpeter's concept of "creative destruction," and was replaced by a form of "unnatural selection," in which a large number of inefficient "zombie companies" that should have gone bankrupt were able to survive. In this situation, the promotion opportunities of the middle class are reduced, salary growth is slow, and at the same time, wealth appreciation is weak due to suppressed savings returns and the precarious pension system.
In Sumner's fable, in this grand modern economic experiment, the middle class (C) became the "forgotten" group silently bearing the cost.
1、 The new era of "Morganization" and large-scale repurchase driven by low interest rates
From historical experience, low interest rates are a breeding ground for corporate mergers and market monopolies. In the late 19th century, during the Gilded Age in the United States, the continuous decline in interest rates led to a wave of industrial trustification led by J.P. Morgan, known as "Morganization".
In our current ultra-low interest rate environment, this scene is happening again.
The prominent feature of this wave of mergers and acquisitions is the rise of 'platform companies', whose business models are not based on internal innovation to improve efficiency, but on a series of anti competitive acquisitions through high leverage debt, with the core goal of cutting costs, eliminating competitors, and seizing market pricing power.
Food giant Kraft Heinz and once notorious Valent Pharmaceuticals are typical representatives of this. Atif Mian and Amir Sufi, three economics professors at Princeton University, proposed in their 2022 article that extremely low interest rates can slow down economic growth by increasing market concentration. By 2016, three-quarters of American industries had become more concentrated than ever before.
For the vast middle class who provide professional skills, the increasing monopoly in the industry directly translates into a career ceiling and weakened bargaining power.
Firstly, when there are only a few giants left in an industry, the window of opportunity for career choices sharply narrows. Changing jobs has become extremely difficult.
More importantly, the internal promotion ladder has become crowded and steep. In a dynamic economy, the emergence of a large number of new companies will continuously create new middle and senior management positions. However, in a fixed industry dominated by a few oligarchs, the number of senior positions is limited, and the internal promotion path is infinitely elongated.
In addition, due to the lack of intense market competition, companies no longer have enough pressure to attract and retain top talent by offering better salaries and benefits.
If industry solidification blocks the horizontal mobility and vertical promotion space of the middle class, then the financialization of corporate behavior fundamentally erodes the foundation of their salary growth.
This financialization refers to the large-scale issuance of low-cost debt for stock buybacks. This is easy and feasible in the era of low interest rates.
There have been three waves of interest rate cuts in the past two decades, and September of this year was one of them.
This is also the fastest shortcut for CEOs to drive up stock prices and their own compensation.
The promotion of repurchase will reduce the number of outstanding shares, and even with the company's total profit unchanged, it can significantly increase earnings per share (EPS). Due to investors' preference for EPS growth, stock prices often receive a boost, resulting in executives holding a large number of stock options gaining huge wealth. This behavior is essentially the use of financial means to create the appearance of profit growth, which Chandler called a modern variant of "promoter's profit".
To put it in familiar terms, this is the 'shift from real to virtual' of capital. Stock repurchases squeeze company funds, resulting in a corresponding decrease in business investment.
This trend is fatal to the salary growth of the middle class.
The reduction in business investment means a slowdown in the creation of high-quality job opportunities. When a company's funds are no longer invested in building new factories, developing new technologies, or expanding production lines, the demand for typical middle-class positions such as engineers, technicians, and project managers in society will decrease. When the growth of corporate profits mainly comes from financial leverage rather than productivity improvement, the fruits of profit growth will inevitably be disproportionately distributed to a few executives and shareholders. Middle class employees who provide labor are excluded from this feast driven by cheap debt.
2、 The suppressed 'creative destruction' gives rise to zombie enterprises
Schumpeter's theory of "creative destruction" emphasizes that economic recession has a purifying effect, can eliminate inefficient enterprises, and make room for new entrants. That is to say, a healthy economy is characterized by frequent job creation and destruction, also known as' employment mobility '. This mobility enables labor to return from declining, low productivity industries and enterprises to growing, high productivity areas.
The role of interest rates is to set a threshold that investment must cross. Investment is only feasible when the expected return rate of a project is higher than the cost of capital.
However, one of the intentions of the ultra-low interest rate policy is precisely to prevent corporate bankruptcy and avoid the short-term pain caused by recession. The long-term consequence is that a large number of zombie companies that should have gone bankrupt are able to survive on cheap credit.
These zombie enterprises do not invest or innovate, but they lock in a large amount of capital and labor, preventing these valuable production factors from flowing to more efficient and innovative emerging enterprises.
Under the low interest rate policy after Japan's foam economy burst, Japanese banks chose to extend non-performing loans rather than recognize losses. This has resulted in Japanese companies that are losing money being more likely to obtain bank credit than profitable companies. The problem of bad debts has been concealed, and decision-makers no longer face pressure for structural reforms.
Europe is no exception. Looking back after the European debt crisis, Greece, Spain, and Italy, which were most severely impacted by the sovereign debt crisis, had the lowest bankruptcy rates.
For the working middle class, this is by no means a good thing as it reduces the opportunities for workers to achieve career advancement and salary growth by changing jobs. When a large number of laborers are trapped in zombie enterprises struggling to survive, they not only cannot share the growth dividends of emerging industries, but their own skills may also gradually fall behind due to a lack of challenges and updates.
3、 Savers punished
As early as the 17th century, philosopher John Locke warned that artificially lowering interest rates would harm the interests of widows, orphans, and those whose property was in the form of currency. Three hundred years later, this has become the reality we face.
Ultra low interest rates are a punishment for savers. It subverts the basic economic principle of "saving with interest" for thousands of years, turning the virtue of frugality into an economically unwise act.
The core characteristic of the middle class is not only that they are the backbone of social production, but also that they are the main savers and investors in society. They accumulate wealth through prudent savings and investments, preparing for their children's education, medical emergencies, and most importantly, a dignified retirement life. This is a financial planning that spans time, transferring the fruits of today's labor to future consumption.
However, in the ultra-low interest rate environment, it is almost impossible to achieve significant wealth growth through risk-free savings.
This situation forces middle-class depositors to face a painful dilemma: either give up savings and use the funds that should have been used for the future for immediate consumption, or be forced to take risks far beyond their risk tolerance in pursuit of even meager returns.
Abandoning savings and living beyond one's means may support consumption data in the short term, but it comes at the cost of sacrificing future financial security. And another group of savers who are forced to take risks invest their funds in areas they are not familiar with, such as junk bonds, complex structured products, and even P2P lending. These assets may appear to offer attractive returns in a low interest rate environment, but their inherent risks have not been fully priced, exposing the savings of the middle class to greater volatility. Once the market reverses, they may face serious losses.
4、 Crisis in the pension system
The heaviest blow to the future financial security of the middle class comes from the fatal threat posed by low interest rates to pensions.
Firstly, low interest rates significantly reduce the expected future returns on pension assets. Whether it is safe government bonds or high-risk stocks, their long-term expected returns are closely related to the level of interest rates. When the risk-free rate of return approaches zero, it becomes extremely difficult for pension funds to achieve their actuarial assumption of return targets.
Secondly, it is also more covert and destructive, as low interest rates greatly increase the present value of future pension payment obligations by lowering the discount rate. Just as bond prices rise with decreasing interest rates, the "price" of pension liabilities also skyrockets with decreasing interest rates.
In June of this year, "First Financial News" also raised this issue: "Faced with an unclear future, personal pensions that span decades cannot provide compensation for investors at the discount rate, thus lacking sufficient attractiveness in investment
Combined with the extended lifespan of the population, there is a huge funding gap in both public and private pension plans worldwide. The 2025 Allianz Global Pension Report estimates that there is a global pension savings gap of approximately $51 trillion.
In order to make up for this huge gap, the government is forced to cut public service spending and allocate more cash flow to fill the shortfall in pensions.
The revenue and expenditure of the US government in August 2025 have almost been emptied by social security and interest expenses, and as for education, research, and defense, which we believe should be the major expenditures of the government, they can almost be ignored.
A more common approach is to directly reduce future pension benefits or transfer the risk entirely to individuals - that is, to shift from "Defined Benefit" (DB) plans to "Defined Contribution" (DC) plans. This means that employees' future retirement income is no longer guaranteed, and its amount depends entirely on the performance of their personal investment account in the market. All investment risks and longevity risks are borne by individuals.
5、 The illusion of wealth and the exacerbation of inequality
Faced with accusations of damaging the interests of savers, experts often use the so-called "wealth effect" as a defense. They claim that low interest rates can make households feel richer by pushing up asset prices such as stocks and real estate, thereby stimulating consumption and ultimately benefiting the entire society.
Is this really the case?
Firstly, the fruits of rising asset prices have been seized by a very small number of affluent classes. Because the vast majority of financial assets (stocks, bonds, etc.) are held by the top 1%. For most middle-class people, their most important asset is their own housing. Although the rise in housing prices has made them wealthier on paper, it is largely a 'wealth illusion'. Because as long as they need to continue living, they cannot monetize the appreciation portion.
Moreover, priced in gold, housing and stock prices have hardly risen in the low interest rate era since 2008.
The high housing prices have made buying a house extremely difficult, creating a huge wealth gap between young people and the older generation who own assets. Even in Western countries, Qian Saile has observed the emergence of the so-called "Generation Rent" and "Bank of Mom and Dad" phenomena.
Therefore, the frustration of young people is becoming increasingly severe, and they, who should be the most energetic, are falling into depression and lying flat all over the world.
The ultra-low interest rate policy has created a 'K-shaped' wealth world. 1% of the financial elite and asset owners took advantage of the asset foam to soar, while the middle class relying on labor income and fixed income savings struggled under the pressure of financial repression and rising cost of living. The central bank claims that its policies are aimed at 'Main Street' rather than 'Wall Street', but the result is exactly the opposite.
1% of wealth net worth is constantly increasing
6、 The Middle Class Today and Tomorrow
For the middle class, the greatest significance of finance should be to safely transfer today's labor results to tomorrow's consumption.
However, the ultra-low interest rate policy, although intended to stabilize the economic order of 'today', has systematically overdrawn 'tomorrow' at the cost.
On the one hand, the middle class is trapped in a stagnant "today": the zombie like economic ecology stifles the survival of the fittest in enterprises, while the financialized incentives for enterprises inhibit physical investment, leading to a broken career ladder and weak salary growth.
On the other hand, it points to an empty 'tomorrow': savings are at risk of shrinking, long-term commitments to retirement are out of reach, and they are not the main beneficiaries of wealth effects.
This makes it difficult for the middle class to obtain the expected career returns through hard work in the present, and to accumulate reliable wealth security for the future.
Pessimists are correct, while optimists succeed. This statement is certainly correct. Simple pessimism has no practical significance.
But what I want to say is that even if we remain optimistic, we should realize that we are Mr. A, Mr. B, or Mr. C in Sumner's prophecy. And this is the most important prerequisite for all reasonable decisions.
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