What to Do about Growth

IMF Blog, February 28, 2017

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Publication date: February 28, 2017
Central concern: Deep unease about rising inequality and stagnating living standards in advanced economies following the global financial crisis of 2008.
Political consequence: The 2016 political upheaval reflected these economic anxieties, with rising populism and a return to nationalist, inward-looking policies that threaten the postwar economic order.
Key framing question: Should advanced economies resign themselves to secular stagnation or can the right policies revive productivity and lasting economic growth?

Declining productivity growth identified as the main reason for slow growth and falling incomes; evidence of this decline existed before the 2008 crisis (Nicholas Crafts, University of Warwick).
IMF economists Gustavo Adler and Romain Duval identify roots of slower productivity in the global financial crisis: tight credit undermined firms’ productivity and the economy’s ability to redirect capital.
Demographics: Ronald Lee (University of California, Berkeley) and Andrew Mason (University of Hawaii, Manoa) argue that:
- Slower population growth will almost certainly mean slower national income and GDP growth.
- The effect on individuals (per capita income and consumption) will depend on economic policies.

Measurement issue: Diane Coyle (University of Manchester) discusses pros and cons of using GDP to measure economic welfare—implying the importance of measuring the right outcomes before prescribing policy.

Two-thirds of the world’s population live in developing and emerging market economies, where:
- Younger populations and still-vibrant productivity are driving higher economic growth at home and in the global economy.
Policy implication: Advanced economies face different structural challenges than many developing and emerging market economies.

Trade: Global trade has been a leading force behind productivity growth; barriers against trade would hurt all economies, large and small.
Policy approach recommended:
- Avoid overreaching or simplistic answers.
- Probe each economy’s specific challenges and design policies accordingly.
Political economy: Policy choices must address redistribution and fairness concerns without shutting down trade—the challenge is to calm public fears while preserving growth-enabling openness.
Call to action: Berkeley economist Bradford DeLong argues, “Only if we do something about it, is it likely that in nine years we will no longer be talking about secular stagnation.”

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- IMFBlog is a forum for views of IMF staff and officials on pressing economic and policy issues.
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- Views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

Source: What to Do about Growth, February 28, 2017.