What’s Holding Back the World Economy? ( Joseph Stiglitz )

[Jefferson23]

February 8, 2016

NEW YORK – Seven years after the global financial crisis erupted in 2008, the world economy continued to stumble in 2015. According to the United Nations’ report World Economic Situation and Prospects 2016, the average growth rate in developed economies has declined by more than 54% since the crisis. An estimated 44 million people are unemployed in developed countries, about 12 million more than in 2007, while inflation has reached its lowest level since the crisis.

More worryingly, advanced countries’ growth rates have also become more volatile. This is surprising, because, as developed economies with fully open capital accounts, they should have benefited from the free flow of capital and international risk sharing – and thus experienced little macroeconomic volatility. Furthermore, social transfers, including unemployment benefits, should have allowed households to stabilize their consumption.


But the dominant policies during the post-crisis period – fiscal retrenchment and quantitative easing (QE) by major central banks – have offered little support to stimulate household consumption, investment, and growth. On the contrary, they have tended to make matters worse.

In the US, quantitative easing did not boost consumption and investment partly because most of the additional liquidity returned to central banks’ coffers in the form of excess reserves. The Financial Services Regulatory Relief Act of 2006, which authorized the Federal Reserve to pay interest on required and excess reserves, thus undermined the key objective of QE.



Read more at https://www.project-syndicate.org/commentary/whats-holding-back-the-global-economy-by-joseph-e--stiglitz-and-hamid-rashid-2016-02#HGwFoiziBVvyjjv1.99

[chervilant]

1. I believe the question SHOULD be

What is holding UP the World Economy?

Every time I expect it to blow apart at the seams, something holds it together. hmm...

[Igel]

2. There are competing assumptions.

In lots of economic arguments.

One assumption is that by default pretty much everybody is prosperous and well off and the economy is even-handed and expanding quickly. If these assumptions aren't held, somebody or something rather specific has to be to blame. It's the "something's holding me/us back" hypothesis for general economic mediocrity and "somebody's deprived me of my share of economic improvement" for individual economic mediocrity. This assumes generalized expansion of the economy.

Another is that by default things run fairly lethargically. People just kind of muck along at a fairly average pace with a fairly slow to mediocre economic growth rate. We make enough to keep body and soul together but not usually vacation at Cannes or Sao Paolo. In this case, something must be done to goose the economic growth rate, and if some benefit more than others it's because, again, somebody's deprived those with less of what they had. This assumes that the economy's mostly a zero-sum game.

I think both suck. Generally, by default and historically, economic growth is asymptotic with population. The only way to get more growth is by increased population, but that can take time to play out. Introduce 100 million new people with low skills and assets into the US and you're not going to get the kind of growth you'd expect. We have population growth, but it's often the wrong kind of people. Low education with low assets, often with large families--raising kids sucks up income and doesn't necessarily count as "investment" these days, and a lot of low-productivity people can increase overall output but decrease per capita productivity (so it matters how you measure things).

When there are innovations in tech and culture you get increased economic growth. Shipping innovations, new products or production methods are tech. Culture includes new ways of structuring income and debt (corporations, legal codes), as well as social trust and capital (general agreement on how to do things). We've had a lot of tech innovations, but at the same time, and more so in the last 20 years, we've seen a decline in economic culture in some countries and in others improvements in economic culture have yielded most of the growth they're likely to and have in some cases become an impediment.

[SoLeftIAmRight]

3. This person must not have played Monopoly as a child.

The game is no fun and does not work once you get behind.