The International Monetary Fund (IMF) and The Conference Board have concluded that investment
is the key to global economic recovery.
Both suggest expansive monetary policy has great limitations and recommend fiscal policy reforms to promote public and private investment that generate strong long-term economic growth.
The IMF was founded in 1944 to promote global monetary and financial stability and now is an organization of 188 countries. The Conference Board was founded in 1916 as an independent research organization that provides economic data and analyses to help business and policy leaders.
Olivier Blanchard, an MIT-trained economist serving as economic counselor and director of research at the IMF, believes the level of global investment has been weaker than expected for some time. Interestingly, Blanchard indicates that this under-investment remains prominent in large developing economies that were not impacted severely by the financial crisis in 2008. This realization is the main basis for their recent downward revision to global economic growth, which was overstated by 0.6 percentage point on average for the past four years.
The IMF believes the massive monetary stimulus has caused excessive appreciation of financial assets, such as bonds and equities, at the expense of direct investment in the land, labor and capital that drives employment and income for the masses. Due to these low levels of investment, The Conference Board remains pessimistic about global economic growth in the medium term (the next four years) and long term (the following six years).
One dollar of investment generates more income than one dollar of consumption does, since investment impacts the beginning of the production cycle and consumption the end. As a result, more ancillary services are required throughout the production process.
Both the IMF and The Conference Board suggest low interest rates will enable very efficient investment programs. The IMF suggests debt-financed investment will not increase the debt-to-income ratio, since employment, income and tax revenues will rise in proportion to the debt, and debt-service payments will remain relatively low.
The key to this investment proposition is the lowering of employment costs, according to the IMF. This will increase employment, the labor participation rate and productivity. They say high-return infrastructure project backlogs currently exist in the U.S. and Germany. This increase in demand will stimulate economic growth in the short term and enhance supply-side economies of scale over the long term. This combination will help maintain strong purchasing power.
Long-term investors now hold nearly $85 trillion in assets under management, according to The Brookings Institution, a Washington, D.C.- based nonprofit, public policy organization. By 2030, they expect global demand for infrastructure investments to reach as much as $57 trillion, since they can act as a strong alternative to equities and Treasurys, and private equity and real estate may be too small to absorb these massive savings.
My tax proposal would lower the cost of hiring significantly. This would permit large increases in investment, capital formation and employment. It would also limit inflation while balancing the budget and lowering debt to income levels.
It's time to implement new, outside-the-box policies that impact the world in a more positive and lasting manner.
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