Tags: Rogoff | environmental | inequality | standards

Rogoff: Several Obstacles Must Be Overcome for Living Standards to Keep Rising

By    |   Wednesday, 05 Mar 2014 09:08 AM

People, particularly in developed economies, have come to expect that their living standards will continually improve, and so far they haven't been disappointed, says Harvard University economist Kenneth Rogoff.

"But past growth performance is no guarantee that a broadly similar trajectory can be maintained throughout this century," he writes on Project Syndicate. "Leaving aside potential geopolitical disruptions, there are some formidable challenges to overcome, mostly stemming from political underperformance and dysfunction."

These include:

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1. "Slow-burn problems involving externalities, the leading example being environmental degradation," Rogoff argues, noting that when it comes to areas like air and water, governments have to step in and regulate.

2. There's a "need to ensure that the economic system is perceived as fundamentally fair, which is the key to its political sustainability," he argues. That perception is no longer a slam dunk given the growing inequality in income. "Until now, our societies have proved remarkably adept at adjusting to disruptive technologies, but the pace of change in recent decades has caused tremendous strains."

3. Aging populations also are a problem, Rogoff adds. "How will resources be allocated to care for the elderly, especially in slow-growing economies where existing public pension schemes and old-age health plans are patently unsustainable?"

4. There's a need for "regulation of rapidly evolving technologies by governments that do not necessarily have the competence or resources to do so effectively," he contends. "We have already seen where poor regulation of rapidly evolving financial markets can lead. There are parallel shortcomings in many other markets."

Solutions exist to all these problems, Rogoff states. Climate risk can be taken care of with a global carbon tax that would lessen government debt at the same time.

"Addressing inequality requires greater redistribution through national tax systems, together with enhanced programs for adult education, presumably making heavy use of new technologies," he writes.

"The negative effects of falling population growth can be mitigated by easing restrictions on international migration, and by encouraging more women and retirees to enter or stay in the workforce." But it's not clear how quickly governments will act, Rogoff stresses.

So will living standards continue to rise?

"In developing countries that have not yet reached the technological frontier, the answer is almost certainly yes," he maintains. "In advanced economies, though the answer should still be yes, the challenges are becoming formidable."

Just like Rogoff, former Federal Reserve Chairman Alan Greenspan is concerned about growing income inequality. "I consider income inequality the most dangerous part of what's going on in the United States," he said at a recent conference, The Fiscal Times reports.

"You can see the deteriorating impact of that on our current political system, and you cannot talk about politics without talking about its impact on the economy."

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People, particularly in developed economies, have come to expect that their living standards will continually improve, and so far they haven't been disappointed, says Harvard University economist Kenneth Rogoff.
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2014-08-05
Wednesday, 05 Mar 2014 09:08 AM
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