The most common use of the term “secular staganation” refers to a chronic lack of demand due to debt, inequality, and aging. And the authors of the analysis “Secular stagnation: The time for one-armed policy is over” — including Citigroup’s chief economist Willem Buiter — do see that as a problem across advanced economies needing further action:
Fiscal policy may be needed, but with public sector debt at high levels in many advanced economies, a combined monetary-fiscal stimulus – i.e. helicopter money – would likely be needed to close the output gap. But focusing on macro demand management policy alone is unlikely to be the optimal policy response. The demand-side drivers of secular stagnation include excessive indebtedness and high (income and wealth) inequality. The optimal response to the threat of secular stagnation therefore includes extensive debt restructuring where there is an overhang of debt and policy measures (including in tax policy, benefits policy, and education policy) to halt, and in part reverse, the persistent increase in inequality.
But they also see a need for a supply-side response, even though they think weak productivity numbers across advanced economies are a statistical issue:
In a world of fast-growing productivity and disruptive innovation, demand may fail to keep pace with supply, which suggests that for a while, (appropriately measured) high productivity growth may be associated with high or rising unemployment. Supply-side hysteresis whereby supply-side distortions – including dysfunctional institutions, policies, rules, regulations and practices – depress current and expected future potential output growth, which in turn depresses effective demand, can also be a serious problem, notably in the Eurozone. High costs of hiring and firing workers may turn labour into a quasi-fixed factor and could thus discourage complementary capital formation. The same holds true for incentive-dulling taxes, intrusive and distortionary regulations of product and labour markets and slow legal procedures, all of which discourage investment and hiring. The opposite point – that faster TFP growth, potential output-enhancing deregulation and other efficiency-oriented supply-side reforms can weaken employment and demand – may of course also have merit at times, mainly because of the uncertainty they create for those at risk of being adversely affected by such developments.2 Policy uncertainty generally may weaken both private investment demand and consumption demand.
So concerns about weak future growth lead to less spending, investment, and hiring today:
But adequate supply-side measures are also needed. These include improving infrastructure in countries, like the US, where woeful infrastructure has been a headwind to private investment. They include pension, social security and healthcare reform in countries where uncertainty about the future of defined-benefit pensions, social security and funding for health and long-term care creates a saving motive for self-insurance reasons. They also include reforms of the judicial system in countries, like Italy, where court cases over even minor contractual disputes can take years and discourage both capital investment and hiring. Reducing unnecessary uncertainty and investment-deterring tax distortions is always desirable. When we have a material effective demand failure, the case for the appropriate redesign of institutions and policies is even stronger.
Seems there is a short-termism angle here as well.
from AEI » Latest Content http://ift.tt/1HQBiF9
0 التعليقات:
Post a Comment