global economy ppt for asia society in hong kong
TRANSCRIPT
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StrivingforGrowthinaPerilousEnvironment:AnEconomicoutlook
JosephE.StiglitzHongKongMay2016
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Whereweare:abriefoverview• Slowgrowth—GreatMalaise,NewMediocre
• Notacrisisyet
• Butpersistentmoderatelyhighunemployment inmanycountries (insomecasesdisguised), higherunemploymentamongyouthandmarginalizedgroups
• Disproportionate shareofslowgrowthgoingtoafewatthetop—growinginequality,wagestagnation
• Evenincountrieswithlow“official”unemployment, raisingquestions ofqualityofjobgrowthanddisguised unemployment
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Immediateprospects• 2015worstglobalgrowthsinceGlobalFinancialCrisis
• AndapartfromGFC,oneofweakestyearsinalongtime
• Hopeisthat2016willbebetter
• Butlittlereasontoexpectsignificantimprovement
• IMFhasbeendowngradingitsforecasts—asitdoesalmosteveryyear
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Weaknesseseverywhere• Slowdown inChina
• Withknock-on effectsespeciallyinthosecountriesdependent onexporting naturalresources
• Mostofwhichfailedtotakeadvantageofcommodity priceboomtoadequatelydiversify theireconomies
• OngoingdebateinChinaabouthowtorespond—mix of supply sideanddemandsidemeasures
• Reflectingdebateabout sourceofgrowthslowdown• Difficultiesmakingthestructuraltransformationtonextstage
• Causeandconsequenceofglobalslowdown
• Politicaldimensions
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Weaknesseseverywhere• Continuingweakness inEurope
• TheEurozonecrisis isnotover• Fundamental structuralflawsinthedesignoftheeuro• Economicintegrationoutpacedpolitical integration• Reforms toolittle,tooslow• Anddisagreements aboutwhatreformsareneeded• Reform inthestructure oftheEurozone itself—more thanthestructureoftheindividualcountries
• Continuingausterityishavingitstoll• Ideologyhasovercome economic analysis
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Weaknesseseverywhere
• ContinuingslowgrowthinUS
• Mildausterity
• Politicalgridlock
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GDPGrowthofDevelopingEconomies
Source:AsianDevelopmentBank,AsianDevelopmentOutlook2016
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Outputpermemberofworking-agepopulationislowerthanbeforethecrisisformostcountries
8
Source:EconomicReportofthePresident2016
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Note:EasternAsiaincludesChina,HongKong,Japan,RepublicofKorea,Macau,Mongolia,andTaiwan.
Source:ILO,WorldEmploymentandSocialOutlook:Trends2016.
EasternAsia:EmploymentOutlook
Cont’donnextslide
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Source:ILO,WorldEmploymentandSocialOutlook:Trends2016.
EasternAsia:EmploymentOutlook
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InequalityinAsia:ontherisesinceearly1990s
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Growthcontinuestobefarbelowthetrendbeforethecrisis:U.S.
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Europeisevenworse
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Stagnation:U.S.medianhouseholdincome(constant2014US$)
Source:U.S.CensusBureau
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
1975 1980 1985 1990 1995 2000 2005 2010
2014:$53,657
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Declineinmedianincomeoffull-timemaleworkerintheU.S.
30,000
35,000
40,000
45,000
50,000
55,000
60,000
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
RealMedianIncomeofFull-TimeMaleWorker,1965-2014
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U.S.minimumwage,1938-2012
Source:U.S.DepartmentofLabor.http://www.dol.gov/minwage/minwage-gdp-history.htm
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Centralprobleminglobaleconomy:lackofglobalaggregatedemand• Growing inequality inmostcountries
• Enormous increase especiallyinUS• Withbottom90%havingclosetostagnantincomesforathirdofacentury
• Decreases inlifeexpectancyamongimportant segmentsofpopulation
• Important issuesofintergenerational justice• Withdeeppoliticalimplications• Perceptioneconomicsystemunfairandpoliticalleaderscannotbetrusted
• Stronganti-globalizationandanti-finance sentiments(Cont’donnextslide)
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Lackofaggregatedemand• Growing inequality inmostcountries (cont’d)
• Macro-economic consequences: Thoseatthetopconsumeasmallerfractionoftheirincomethanthoseatthebottom• SomeLatinAmericancountries represent importantexception
• Partofnewview:lowerinequalityisassociatedwithbettereconomicperformance
• Widespread austerity—government cutbacksorlimitedgrowth
• Importanceoffiscaldisciplinenowwellaccepted
• Butsomecountrieshavegonetoofar:failuretoundertake highreturninvestmentswhenthereareunemployedresources andaccess tolowcostfunds
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Lackofaggregatedemand• Structuraltransformation
• Inadvancedcountries,inresponsetotechnologyandglobalization• Frommanufacturingtoservicesector• Decreaseinglobalemploymentinmanufacturing• Andbecauseofshiftingcomparativeadvantage,theywillhaveasmallershareofthisshrinkingnumber
• InChina,fromexportledgrowthtodomesticdemanddrivengrowth• Fromquantitytoquality• Fromruraltourban• Frommanufacturingtoservice• Demographictransition
• Marketsontheirowndon’tmanagethesetransformationswell
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• Global imbalances
• Eurozonehasexacerbated problem
• Nowmoreimportantassourceofimbalances thanChina
• Asymmetricaladjustment
• Countries (firms, households) facingadeclineinincomehavetoreduceconsumption
• Thosewithincreased incomedonotexpandspendingsymmetrically
• Response tochanges inoilpriceillustrates• Manyhadexpected decrease inoilprices tostimulateglobaleconomy
• Butcutbacksininvestment, spending inoilproducersmorethanoffsettingconsumerbenefits
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Asynchronousmonetarypoliciesintroducingnewelementofuncertainty
UStalkingaboutraisinginterest rates,EuropeandJapanmovingintonegative interest rates• Largeimplicationsforexchangerates• Newglobaluncertainties
• Reversal ofcapitalflows
• Paceofoutflows fromChinashowsthateven largereserves maynotprovideadequate protection
• Puttingstressoncountriesandcompanies inemergingmarketsthatareoverindebted
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Asynchronousmonetarypoliciesintroducingnewelementofuncertainty
• Periodofultra-lowinterestrateshasnothaddesiredbenefitintermsofincreasedinvestment
• Hasledtoassetpricebubbles,mispricingofrisk,increasedwealthinequality
• Lowerinterestratesmayevenloweraggregatedemand
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Dysfunctionalglobalfinancialmarket• Standingbetween longterm investmentprojects (infrastructure)andlongterminvestors (pension funds, sovereignwealth funds)areshortsighted financialmarkets
• Haven’tbeenabletorecyclesurpluses
• Mostofattention infinancialsector reformhasbeencenteredonpreventing financialmarkets fromimposingharm
• Realneed tomakesurethatfinancialsectorperforms itscriticalsocietalrolesallocatingcapital,managingrisk,andrunningpaymentssystem• Allofthisshouldbedoneatlowcost
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Dysfunctionalglobalfinancialmarket
• Traditionalrolefocusedonintermediationandlendingtobusinesses
• Today,inUS,financialsectorengagedindisintermediation• Leadingtolowerlevelsofinvestment(lowerlevelsofaggregatedemand)
• LeveloflendingtoSMEsveryconstrained
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AgendaforachievingsustainableandsharedgrowthFocusesonaddressingunderlyingsourcesofweakness
1.BeyondausterityRethinking budgetaryrulesandframeworks
• CapitalBudgeting
• Balance sheetperspective especially importantwhencostoffundsislowandreturnstoinvestments arehigh
• Stabilization Funds,especially fornaturalresourceeconomies
• Tomanagerealexchangerate,smoothconsumption andinvestment
• Usingdevelopment bankstopromote investment
• Iffiscalconstraintsstill binding,useprinciple ofbalanced budgetmultiplier
• Ifexpenditures andtaxeswellchosen,canbehigh
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2.IndustrialPolicies• Centraltoeconomic/structural transformation
• Justified intermsofstandardtheories ofmarketfailures
• Affecting thestructureofproductionandthechoiceoftechnology
• Broadofobjectives (notjustGDP:environment, equality,employment,economicdiversification)
• Especiallyimportant increatingalearningsociety/knowledgeeconomy—
• Realsourceofwealthofeconomy
• Especiallyimportant in21st century
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IndustrialPolicies• Focusonknowledge spillovers/learning-by-doing effects
• Manyinstruments
• Competitive andStableRealExchangeRates
• Inmanycountries,development bankshaveplayedanimportantrole
• Needadevelopment oriented intellectual property regime
• Agendaentailsstrengthening thepublicsectorandenhancing itscapabilities
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IndustrialPolicies• Every countryhasanindustrial policy
• Embedded inexpenditure andtaxpolicies, andbasiclegalframework
• Somecountriesdonotrealize thattheyhaveanindustrialpolicy• USpolicy:promotedysfunctional financial sector• Worked: sectorgrewenormously
Basicideas: J.E.StiglitzandBruceGreenwald,CreatingaLearningSociety:ANewApproachtoGrowth,Development,andSocialProgress,NewYork:ColumbiaUniversity Press,2014(abridgedversion,2015).
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3.Inequality
Increasingequalitywould increase consumptiondemand
• Moreprogressive taxandexpenditure policies
• Rewritingtherulesofthemarketeconomytomake theeconomymorebalanced, fairerwould resultinbetterdistributionofmarket income, andfastergrowth
Stiglitz,J.E.,N.Abernathy,A.Hersh,S.Holmberg, andM.Konczal (2015).Rewriting theRulesoftheAmericanEconomy,NewYork:W.W.Norton,2015.
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4.“Fixing”financialmarketwouldprovidefinance
• Notjustpreventingharm
• Butinducingfinancialmarketstoperformsocietalrolethattheyaresupposedtoperform
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Globalcoordinationneeded
• Torespondtodeficiencyinglobalaggregatedemand—largespillovers
• Topreventasynchronousmonetarypolicies
• HopewasthatG-20wouldprovidethat
• Hasn’thappened
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ConcludingRemarks:TherewillbepoliticalandsocialconsequencesofWeakGlobalEconomy
• Highyouthunemployment isespecially troublesome—hysteresiseffect
• InEurope,growthinextremistpartiesandseparatistmovements
• InUS,angerevident insupportofanti-establishment candidates
• Everywhere, underinvestment inpeople, infrastructure,andtechnologywill lower growth
• Inemergingmarkets, thewaythelessbenignconditions aremanagedwilldetermine distributional effects
• Whichinturnwillaffectgrowthanddevelopment prospectsgoingforward
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TheWorldEconomy:TheWayForward
• TheNewMediocre,theGreatMalaise,SecularStagnationarenotinevitable
• Theyaretheresultoffailedpolicies
• Reversingthosepoliciescouldhelprestoreeconomicgrowth