Tags: Samuelson | global | economy | sluggish

WaPo's Samuelson: 3 Factors Behind Global Sluggishness

By    |   Monday, 13 October 2014 06:52 PM

Concerns about global economic weakness are coursing through financial markets and the halls of government around the world.

So what's to blame for this economic torpor? Washington Post columnist Robert Samuelson lists three key causes.
  • "One is the hangover from the 2008-09 financial crisis," he writes. "Sobered and scared, people and businesses delay consumption and investment." That means debts are being reduced and savings increased, Samuelson explains. "These may be prudent behaviors for individuals and companies, but when practiced by the multitudes, they subtract from economic activity."
  • Second is "the legacy of global trade imbalances in the 1990s and early 2000s, when China and some other countries ran huge surpluses and the United States and some others ran huge deficits," he notes. "This boosted growth for the exporters and their raw material and component suppliers. . . . But this system depended on the voracious spending of Americans and Europeans. When the spending declined, the export bubble burst."
  • Third is "the cost of maturing welfare states," Samuelson says. That applies to the United States, Europe and Japan. They face aging populations and large government commitments for retirement benefits. The issue of budget-deficit reduction is a politically tricky one, requiring either spending cuts or tax increases.
"All of these problems involve wrenching adjustments. Each affects countries differently. But all have a similar economic effect: They reduce demand," he argues.

"Any one of them would impose a formidable drag on national economies. The fact that all are operating simultaneously and reinforcing each other has forged them into a powerful international force that has, so far, offset many of the policies (low interest rates, budget deficits) intended to strengthen economic growth."

Experts have warned of dire results if the global economic sluggishness continues.

"A sudden shift in sentiment could easily cascade across the entire globe," International Monetary Fund Managing Director Christine Lagarde said at an IMF meeting this weekend. "There is too little economic risk taking, and too much financial risk taking."

She put the problem in colorful terms in a speech earlier this month, according to Bloomberg.

"The global economy is at an inflection point: it can muddle along with sub-par growth — a new mediocre. Or it can aim for a better path where bold policies would accelerate growth, increase employment and achieve a 'new momentum."

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Concerns about global economic weakness are coursing through financial markets and the halls of government around the world.
Samuelson, global, economy, sluggish
Monday, 13 October 2014 06:52 PM
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