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1/9
With Covid-19 having hammered consumption and forced up household savings, the FT advises that "for longer-term recovery, a shift from consumer spending to business investment will be needed. Governments can help by making tax more... https://www.ft.com/content/f0bf197e-0dfa-4041-bcd6-b2289a7914ee
With Covid-19 having hammered consumption and forced up household savings, the FT advises that "for longer-term recovery, a shift from consumer spending to business investment will be needed. Governments can help by making tax more... https://www.ft.com/content/f0bf197e-0dfa-4041-bcd6-b2289a7914ee
2/9
investment-friendly, allowing business to fully write off capital spending. Increasing government investment too will be sensible."
Their point is that to maintain growth, an increase in household savings must be matched by an increase in investment, or else higher...
investment-friendly, allowing business to fully write off capital spending. Increasing government investment too will be sensible."
Their point is that to maintain growth, an increase in household savings must be matched by an increase in investment, or else higher...
3/9
ex-ante household savings will be balanced by lower savings elsewhere, driven either by higher unemployment (and lower GDP) or higher debt.
But although more business investment would certainly be a good thing, businesses invest to serve expected growth in demand, and if...
ex-ante household savings will be balanced by lower savings elsewhere, driven either by higher unemployment (and lower GDP) or higher debt.
But although more business investment would certainly be a good thing, businesses invest to serve expected growth in demand, and if...
4/9
the growth in consumption remains low or negative, so will business investment. Implementing investment-friendly tax policies in that case won't help much, any more than reducing borrowing costs further. When investment is constrained by high costs, including a high cost...
the growth in consumption remains low or negative, so will business investment. Implementing investment-friendly tax policies in that case won't help much, any more than reducing borrowing costs further. When investment is constrained by high costs, including a high cost...
5/9
of capital, lowering these costs might then boost investment, but when investment is constrained by weak demand, lowering these costs will have limited impact.
This suggests there are really only two ways to boost demand sustainably in response to weak consumption.
of capital, lowering these costs might then boost investment, but when investment is constrained by weak demand, lowering these costs will have limited impact.
This suggests there are really only two ways to boost demand sustainably in response to weak consumption.
6/8
One way is to reverse higher household savings, and so reverse weak consumption growth, by boosting wages and transfers to the poor and the middle classes. In that case higher consumption growth will also automatically set off higher business investment, especially while...
One way is to reverse higher household savings, and so reverse weak consumption growth, by boosting wages and transfers to the poor and the middle classes. In that case higher consumption growth will also automatically set off higher business investment, especially while...
7/9
borrowing costs remain so low.
The other way is for the government to take the lead and boost public-sector spending on productive infrastructure investment. While this means that government debt will rise, GDP will rise faster, making the debt burden easier to manage.
borrowing costs remain so low.
The other way is for the government to take the lead and boost public-sector spending on productive infrastructure investment. While this means that government debt will rise, GDP will rise faster, making the debt burden easier to manage.
8/9
Of course in our beggar-thy-neighbor world in which countries with weak domestic demand try to grow faster by absorbing foreign demand through rising trade surpluses, either of these policies – especially the first – would be reinforced by policies designed to reverse...
Of course in our beggar-thy-neighbor world in which countries with weak domestic demand try to grow faster by absorbing foreign demand through rising trade surpluses, either of these policies – especially the first – would be reinforced by policies designed to reverse...
9/9
trade deficits. Otherwise countries that implement policies to boost domestic production will end up absorbing much of the benefit of policies in other countries aimed at boosting domestic demand. https://carnegieendowment.org/chinafinancialmarkets/81871
trade deficits. Otherwise countries that implement policies to boost domestic production will end up absorbing much of the benefit of policies in other countries aimed at boosting domestic demand. https://carnegieendowment.org/chinafinancialmarkets/81871
