Via Reuters.
Now for the bad news. While the steady or slightly accelerating global growth rates predicted by the IMF is the most likely outcome, it may not be achievable because of three imbalances: social, geographical and demographic. These seem deeply embedded in the structure of global capitalism today. They are weakening demand, creating excess savings and driving the buildup of borrowing and lending that has been both a cause and consequence of the global financial crisis.
The most dangerous imbalance is in the distribution of wealth and income. Income disparities have become a source of political and moral controversy, but their macroeconomic effects have attracted less attention. The mechanism whereby income inequality causes economic stagnation was recognized by Karl Marx and other 19th-century writers.
If too much of the income created by capitalism’s capacity to increase production flows to people who are already rich and likely to save rather than spend, then crises of under-consumption become almost inevitable, as described by Marx in Das Kapital and analyzed more rigorously by John Maynard Keynes in the 1930s. The only way to avert such crises is to create financial systems that recycle excess incomes from rich savers to poorer consumers via a buildup of debt.
Geographical imbalances are a second major cause of weak demand. The global imbalance that generated controversy before the crisis was between the United States and Asia. This has largely disappeared as U.S. consumption and borrowing have subsided, while China and Japan have shifted away from export-driven growth models.
In the meantime, however, an equally troublesome imbalance has emerged between Germany and the rest of the Europe. Germany’s current account surplus of 7 percent of GDP is now larger and more persistent than the Japanese or Chinese surpluses before the crisis. Yet on the global stage, Germany is not subjected to the same sort of pressures. Germany’s political dominance in Europe also makes it immune to the kind of demands for policy changes that Washington applied to Japan and China, while the existence of the euro rules out the currency adjustments that ultimately removed the imbalances between Asia and the United States.
The third imbalance is demographic. Believers in secular stagnation have drawn attention to the downward pressure on labor supply as baby boomers retire. But this is unimportant in a period of high unemployment, when there is no shortage of workers to limit economic output. The bigger impact of demographic aging is on macroeconomic demand. Particularly when this problem is aggravated by Social Security and labor policies that shift incomes and economic opportunities in favor of retirees and older workers at the expense of younger generations.
Now for the bad news. While the steady or slightly accelerating global growth rates predicted by the IMF is the most likely outcome, it may not be achievable because of three imbalances: social, geographical and demographic. These seem deeply embedded in the structure of global capitalism today. They are weakening demand, creating excess savings and driving the buildup of borrowing and lending that has been both a cause and consequence of the global financial crisis.
The most dangerous imbalance is in the distribution of wealth and income. Income disparities have become a source of political and moral controversy, but their macroeconomic effects have attracted less attention. The mechanism whereby income inequality causes economic stagnation was recognized by Karl Marx and other 19th-century writers.
If too much of the income created by capitalism’s capacity to increase production flows to people who are already rich and likely to save rather than spend, then crises of under-consumption become almost inevitable, as described by Marx in Das Kapital and analyzed more rigorously by John Maynard Keynes in the 1930s. The only way to avert such crises is to create financial systems that recycle excess incomes from rich savers to poorer consumers via a buildup of debt.
Geographical imbalances are a second major cause of weak demand. The global imbalance that generated controversy before the crisis was between the United States and Asia. This has largely disappeared as U.S. consumption and borrowing have subsided, while China and Japan have shifted away from export-driven growth models.
In the meantime, however, an equally troublesome imbalance has emerged between Germany and the rest of the Europe. Germany’s current account surplus of 7 percent of GDP is now larger and more persistent than the Japanese or Chinese surpluses before the crisis. Yet on the global stage, Germany is not subjected to the same sort of pressures. Germany’s political dominance in Europe also makes it immune to the kind of demands for policy changes that Washington applied to Japan and China, while the existence of the euro rules out the currency adjustments that ultimately removed the imbalances between Asia and the United States.
The third imbalance is demographic. Believers in secular stagnation have drawn attention to the downward pressure on labor supply as baby boomers retire. But this is unimportant in a period of high unemployment, when there is no shortage of workers to limit economic output. The bigger impact of demographic aging is on macroeconomic demand. Particularly when this problem is aggravated by Social Security and labor policies that shift incomes and economic opportunities in favor of retirees and older workers at the expense of younger generations.
RSS Feed
