Economics

Racconto di due teorie

Aug 31, 2015 Jean Pisani-Ferry

PARIGI – La crescita globale delude ancora. Un anno fa, il Fondo monetario internazionale prevedeva per il 2015 una crescita della produzione mondiale pari al 4%. Oggi, le stime dell’organizzazione parlano di un 3,3% per l’anno in corso, ovvero più o meno lo stesso livello registrato nel 2013 e 2014, e oltre un punto percentuale in meno rispetto alla media del periodo 2000-2007.

La crescita dell’eurozona nell’ultimo trimestre ha lasciato alquanto indifferenti; il Giappone si è nuovamente addentrato in territorio negativo; il Brasile e la Russia sono in recessione; il commercio mondiale è in una fase di stallo; infine, il rallentamento dell’economia cinese e il conseguente turbamento dei mercati quest’estate hanno rafforzato il clima d’incertezza.

Certo, qualche spiraglio positivo c’è: la performance dell’India, della Spagna e del Regno Unito sta superando le aspettative. La ripresa degli Stati Uniti appare solida, e anche l’Africa sta andando bene. In generale, però, è difficile negare che l’economia mondiale manchi di slancio.

To continue reading, register now.

Subscribe now for unlimited access to everything PS has to offer.

As a registered user, you can enjoy more PS content every month – for free.

Already have an account? Log in

Subscribe to PS Digital

Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.

Subscribe Now

new comment has been posted. new comments have been posted.

0 Comments on this paragraph, 19 Comments on this article

jagjeet sinha Sep 7, 2015

When the Titanic tanks, whether the steel was too weak or the icebergs too big is perhaps the wrong question.
The truth is that there is no shortage of demand in the real world - never was, never will be.
The supply of goods and services to meet that demand needs to be organised and financed - mostly by recycling Capital Flight.
Bretton Woods Institutions were not designed to transform Infrastructural Finance in Emerging Economies into Value creation.
That demand still exists - and perhaps is the panacea for growth, both in the Emerging Economies as well as the Emerged Economies.
That unsatisfied demand is one key reason why Migration remains Issue # 1 worldwide - weakened economies are the key drivers.
Asset Prices need to dimension the concomitant debt mountains lest debt becomes unsustainable.
Multilateral Financial Institutions need a Template that captures Assets created by their Debts.
Multilateral Financial Institutions need a Template that recycles Capital Flight into repackaged Infrastructure Investment Portfolios.
Credit Enhancements - famously deployed in mass production of Residential Mortgages via Fannie Mae & Freddie Mac - perhaps pointers.
Demand will always exceed supply in the real world - it is human blinkers that renders them invisible.
A new reply to this comment has been posted.
robert mcdowell Sep 7, 2015

China's economy slowing is not a cause but a symptom despite slowdown being inevitable and despite it past years growth statistically exaggerated. China depends on net exports and investment inflow. Net exports fell but capital flows turned negative. China's lower growth rate is merely a result of lower growth and import demand elsewhere especially Europe and USA.
A new reply to this comment has been posted.
robert mcdowell Sep 7, 2015

Both theories are theoretical and subjective, including the BIS view. Looking at actual data several things are obvious. One, banks in OECD countries (andnow in China) are still shrinking their funding gaps and therefore not expanding lending or doing so only reluctantly and slowly. Banks have long since lerned to dictate effective demand for credit irrespective of the base rate of interest and learned to dictate the sectors thet wish to preference e.g. mortgages in trade deficit countries and industrial manufacture and trade finance in export surplus countries. The low global growth arises from the continuation of the same extreme imbalances in world trade as before the financial crisis recession but international private capital flows are not compensating for trade imbalances as they used to before the crisis. Banks continue to repatriate their balance sheets and there is a lot of capital flight from "South" to "north", from higher sovereign risk countries to lwer sovereign risk countries where real interest rates are negative and unproductive investment outsells productive investment.
A new reply to this comment has been posted.
jracforr jracforr Sep 6, 2015

Neither theory explain what is happening today as the only nations struggling are those referred to as BRIC. Russia's economy is under western sanction and therefore cannot grow,China's economy is still growing at a realistic 7% which is normal .This leaves Brazil and India with the Indian economy doing fairly well as noted.Brazil's faltering economy is threatened by capital flight and corruption which are unrelated to the theories being promoted
A new reply to this comment has been posted.
Philip George Sep 6, 2015

There is a perfectly simple explanation for why the recovery from the 2007-09 crash has been so long-drawn-out. In the US, for instance, the median household lost 18 years of their accumulated saving in the market crash. With interest rates close to zero, there is only way they can recoup that loss. And that is by increasing their saving rate. Now increasing saving rate reduces consumption and therefore reduces aggregate demand. If you assume that the entire US population, on average, lost 12 years of their net worth in the crash, it will require 12 years of reduced consumption to recoup that loss. More details in my book "Macroeconomics Redefined" at http://www.amazon.com/dp/B00ZX9O5XQ
A new reply to this comment has been posted.
Jules Pierre Sep 3, 2015

Let's do courageous reforms and plug the holes with (uncertain) debt in the meantime. That seems reasonable, I just wonder why we need an army of economists to get to it...
A new reply to this comment has been posted.
M A J Jeyaseelan Sep 3, 2015

In a nutshell, economic growth is something that money cannot buy.

Money has a role only in distributing the outcomes of growth. It can facilitate growth only by making effective distribution of incomes.

However, monetary policies and instruments have only helped distort the effective functioning of the real economy so far by enabling the illegitimate appropriation of incomes by those, who did not contribute to its generation
A new reply to this comment has been posted.
M A J Jeyaseelan Sep 3, 2015

The biggest folly of modern day economists is to believe that the paper economy can pull the real economy up. While the paper economy has the potential to ruin the real economy, it will never have the power to lift the real economy up.

In my opinion, people are getting too addicted to using remote controls. Economists particularly, have developed a strange fixation for controlling the real economy with the help of an universal remote control called interest rates.

There are no magic wands in economics. Real growth takes place, when people keep buying more and more of goods and services and the money for increased buying comes from producing more and more of goods and services. Period!

There are dynamic structural equations within the real economy, while monetary instruments too are too generic to address specific structural problems of the real economy. Money is like water. It must flow to the fields, where real value addition will take place. Like floods and droughts can cause grave havocs, monetary mechanisms and instruments, which divert the flow of resources in to all kinds speculative activities, cause irreparable damage to the real economy.

The fundamental mistake that economists are making these days is to equate money capital to growth capital (physical production assets). Interest rates have to be factor payments for the investments in growth capital and must be determined by the level of productivity in the economy. Interest rates, which are not aligned to productivity levels in the economy can only distort the efficient functioning of the real economy.

I believe that the blame for the problems faced by the world economy must squarely fall on the economists and the politicians who make use of their wrong advice.
A new reply to this comment has been posted.
Godfree Roberts Sep 2, 2015

China’s economic slowdown is non-existent. Otherwise the article is thoughtful.
As to China: its debt fragilities are over-stated. They do not threaten the model. The proof is in the numbers. Not just headline growth, but stable and low inflation, strong wage growth and rising tax revenue. The St Louis Federal Reserve estimate that the multiplier on Chinese government spending is two. The economy is creating surplus capital to replace that which is destroyed. Finally, there's exports. Exports validate internal data: China is taking global market share. and prices are falling even as wages and currency rise. What's happening externally is surely happening internally.
The four largest, most profitable companies on earth are Chinese SOEs. China’s four biggest banks own the top four places in the world. Industrial and Commercial Bank of China tops the list for the third consecutive year: Sales $166.8 B, profits $44.8 B, assets $3,322 B and market value: of $278.3 B
A record 7.5 million students graduated from China's universities this year, highlighting the employment situation among fresh graduates as the country's economic growth slows.
New graduates born in the 1990s are earning an average of 2,687 yuan (US$420) per month in their first jobs, an increase of 244 yuan (US$38) from a year ago.
This will be another year of boring old 7% acceleration and see the biggest GDP growth in world history.
- Fred Bauder Sep 6, 2015
  
  True, there is no economic slowdown in China; there is a reduction in the rate of growth, to perhaps as low as 4%, a number the United States would be happy to have. However, allowing state owned firms and local governments to borrow money cheaply, or raise money by selling farmers's land to investors, and then make investments which don't pay will, in the end will result in the sort of systemic stagnation which doomed the Soviet Union. Building cities no one lives in or having the capacity to produce 200% of the steel required by China will not work regardless of the willingness of the state to bail out firms and local governments.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
Luca Grande Sep 2, 2015

Two respectable theories proposing opposite strategies to resolve a problem.... it sounds like a two variable equation with an impossible solution, which is exactly what it is. Growth cannot be overstimulated forever, and certainly not simply with the monetary policy tools of higher or lower interest rates.
Both theories have some valid points but they both omit the fundamental fact that economic theory never assumes the presence of an economic bubble in the first place. Monetary policy should be used to TEMPORARILY stimulate an economy that is somehow below potential, not used to FOREVER INFLATE ASSET PRICES. To sum it up, sustained growth from these level is simply impossible (at least in developed world) and you have two choices: 1) Secular Stagnation (Larry Summer's hypothesis); 2) sharp economic collapse, severe financial markets collapse, hopefully followed by more sustained growth (kinda like BIS hypothesis). But because Central Banks have been pushing market expectations too high in terms of growth and for too long, in both cases the adjustment process is going to be much more costly than needed.
A new reply to this comment has been posted.
Paul Daley Sep 1, 2015

Good summary. The problem with the secular stagnation explanation is that the recommended cure, through QE, just adds to the savings glut. Central Banks need to open a channel for monetary easing that does not directly feed asset prices, and to use that channel to stimulate demand for new goods and services as they sell off their bond portfolios. In the USA, the IRS' withholding system could easily provide that channel, if it were run backwards;i.e, with low interest FED loans to taxpayers in proportion to their withholding and collections through the withholding system.
- Michael Public Sep 1, 2015
  
  QE is a lame duck policy anyway - because the banks are too scared to lend out the capital to main street so they loan it back to the government. If I give you a loan and you give me a loan both of the same amount - do we still have a loan - I would say no.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.
Petey Bee Sep 1, 2015

I'm going with the BIS explanation. Market-clearing real interest rates are negative because of policies, in the US, EU, and Japan, deliberately designed to support sovereign bond prices. Not clear how much this affects the rate of growth in economic transactions, there may be material causes for that that compete with financial ones in terms of significance.
A new reply to this comment has been posted.
Michael Public Aug 31, 2015

If you strip away the fancy theories economies are just people doing useful things for each other. Yes, natural resources can play a role, but not really. To get the most out of your economy, you need the best and brightest given the resources they need to innovate and get everyone doing the most useful things possible. The main thing entrepreneurs need is capital. Economies perform badly when this capital becomes blocked up in other things - real estate, stock markets, government bonds. To get the capital to work, there should be an interest rate levied on any passive capital, with that interest being transferred to the most capable entrepreneurs. If that is not happening stagnation ensues and you can try any policy measure you want and you will just tread water.
- Nathan W Sep 6, 2015
  
  It's not like "idle capital" is sitting in a hole in the ground. The financial system continues to make that capital available, for interest, to entrepreneurs. Among other things, massive amount of "idle capital" are already acting to lower borrowing rates for entrepreneurs.
  A new reply to this comment has been posted.
- Nathan W Sep 6, 2015
  
  "Economies perform badly when this capital becomes blocked up in other things - real estate, stock markets, government bonds."
  
  Real estate will always be important to any economy, but perhaps you are right in cases where capital is tied up in INFLATED real estate.
  
  Stock markets are the means whereby companies raise capital for their investments. Sure, there are also gamblers on the stock market, but it is a very proven and highly liquid way to get capital where it needs to go.
  
  Government bonds serve a critical role for long term institutional investors, for example pension funds. Without them, your pension could be tied up in the stock market during a depression, and not only is that bad for pensioners, but it is also against the law in many countries for pension funds to be "too risky".
  
  "To get the capital to work, there should be an interest rate levied on any passive capital,"
  
  Companies are sitting on massive amounts of idle capital. But if there were any promising projects, wouldn't they have already be doing them? Moreover, in the face of the recent 2008 crisis, where nearly every major corporation in the Western world was faced the possibility of running out of cash and going bankrupt before the crisis was over, I think we can expect that companies will be careful to hold on to lots of cash for a very long time. When the next crisis hits, we will call them wise, but in the meantime, we should not force them to bet on risky projects by taxing "idle capital". That capital sits in banks, bonds, etc., and via financial markets will in any case find its way to one some project where someone needs to borrow money in the hope of earning a profit.
  A new reply to this comment has been posted.
- Gary Tucker Sep 4, 2015
  
  I believe the prime example of stagnant capital is the vast amount of money kept overseas by the USA's use of the Corporate Repatriation Tax instead of the Territorial Tax system. This also leads to the US's overall hesitancy to promote overseas investment to stimulate growth in the frontier and developing world. That lack of tax free repatriated profits, and thus the secondary tax income generated as it flows through the system, hinders the infrastructure and r & d spending so sorely lacking at home to stimulate more high paying jobs.
  
  With the same vigor that many clamor for a $15 an hour minimum wage they should also clamor for a minimum $5+ a day per capita income worldwide. That in turn would bring renewed growth to Japan, the EU and elsewhere around the developed world.
  A new reply to this comment has been posted.
- Shoshon Tama-Sweet Aug 31, 2015
  
  Getting capital away from stagnant, passive locations in the economy and getting into dynamic, value creating areas of the economy is as important as having the correct amount of money at the right interest way. Taxing wealth and/or corporate savings at 1% and putting it into infrastructure in the US, or into small business loans, would go a long way toward putting idle capital to work.
  A new reply to this comment has been posted.
A new reply to this comment has been posted.

https://prosyn.org/xs05N01it

Racconto di due teorie

Subscribe to PS Digital

New Comment

Contact us

Log in/Register

Racconto di due teorie

Subscribe to PS Digital

Edit Newsletter Preferences

Set up Notification