The tendency for stocks to outperform bonds is not a reward for taking risks, but a political transfer of wealth caused by money printing.
March 31, 2026
Original Paper
The Equity Premium Puzzle, Solved: Monetary Debasement, Inflation Incentives, and the Structural Transfer from Lenders to Owners
SSRN · 6452178
The Takeaway
For a century, economists have wondered why stocks pay so much more than 'risk-free' bonds. This paper argues it is a side-effect of the 'Cantillon Effect,' where newly printed money enters the financial system through assets first, inflating stock prices while systematically suppressing the yields paid to bondholders and savers.
From the abstract
The equity premium puzzle - the phenomenon that equities have outperformed risk-free government debt by 6-8% annually for over a century, far exceeding what standard models can explain with reasonable risk aversion - has been called the biggest unsolved problem in academic finance. This paper argues the puzzle is solvable, and that its persistence reflects a misclassification: it has been treated as an asset pricing problem when it is fundamentally a political economy problem. We identify three