Michael Spence explores the causes of partial and stalled economic recoveries. - Project Syndicate - 0 views
-
Indeed, recent data suggest that more than half of the acceleration in US growth is occurring on the tradable side, even though it accounts for only about one-third of the economy. And that contribution is probably an underestimate, because income generated on the tradable supply side produces income that becomes demand on the non-tradable side – a multiplier effect that crosses the tradable/non-tradable boundary.
-
the main problem is that public-sector investment remains well below growth-sustaining levels. The hard part of fully realizing potential growth is shifting the composition of domestic demand from consumption to investment without adding leverage. That means paying for it on the public-sector side, via taxes and a reduction in household consumption (and in wealth accumulation).
-
But such adjustments cannot happen in a monetary union, so unit labor costs are slowly re-converging via a protracted process of flat nominal wage growth and slowly declining real wages (a process that would be quicker with higher inflation in Germany and Northern Europe).
