#kennethrogoff

by Shelby Dattilo

October 15, 2014

Following the International Monetary Fund’s annual meeting from Oct. 10-12, there was a gloomy outlook for the growth of the global economy. However, expert panelists at the 15th Annual World Knowledge Forum were able to shed some light on why this prognosis may not be accurate for all developed nations.

The distinguished panel included Kenneth Rogoff, Harvard University Professor of Public Policy and former Chief Economist at the International Monetary Fund, Masaaki Shirakawa, former governor of the bank of Japan, Gang Fan, Director of the National Economic Research Institute in China, Jean-Claude Trichet, former President of the European Central Bank, and Jacob A. Frenkel, former director of the National Economic Council.

Panelists discussed each of their home regions in regards to current growth percentages given at the International Monetary Fund meeting, as well as future plans for continued growth. Dr. Rogoff noted that the United States seemed to be doing even better than it looked after the meeting projections.

“The United States certainly has much better demographics than most other countries, a lot of available land, a very good pro-creative, pro-technology environment... [In the future] we will be able to do things like infrastructure investment, tax reform, and other things that will put the economy on a better footing going forward,” he said.

Infrastructure investment, tax reform, and labor market developments seemed to be key objectives for most of the developed nations looking forward. The topic of the labor market took center stage when Mr. Masaaki discussed the future of Japan’s labor population.

“The labor pool is shrinking at a rapid speed. At the same time, consumption demand is not decreasing,” he said.

Mr. Masaaki noted that this imbalance is due to the widening gap between the production population and the consumption population. He explained the gross domestic product per capita in Japan since 2000 is poor when compared globally, but Japan’s GDP per working age population is the strongest within the developed nations.

Mr. Trichet noted that growth in Europe is far from satisfactory. He cited the sovereign risk episode in 2010 as a main reason for this lack of growth.

“Since those 4 years, we were at the epicenter of the crisis. This explains why growth is not as it should be,” he said.

Speaking to ways governments can aid in avoiding these types of economic downturns, Mr. Gang stated that governments cannot become too negative. He noted that his biggest worry for China is that government policy is too tight. Furthermore, Mr. Gang said he would like to see investment from the government to help stimulate the growth rate.

“The growth rate is low partially because government investment is too low,” he stressed.

While the other panelists focused on their home countries, Mr. Frenkel gave more of an overview of the global economic situation. He put particular emphasis on emerging markets, stating that their increasing role in the global economy is a “mega trend.”

“In the next 20 years the population of the world will be larger than now by 1.5 billion people. Of which 1.45 billion are in emerging markets,” he said.

The issue of inequality between emerging markets and developed nations, as well as inequality within those nations, is still considered a global issue. However, Dr. Rogoff squashed popular claims that inequality is at its height.

“The last 3 decades have been the best in history for reducing inequality,” he said.

Dr. Rogoff also suggested that Europe can apply similar tactics used in the US to help stimulate the economy. He noted that Europe has much larger scale governments than that of the United States, but that their recent proposals to cut taxes now, along with the aim of reducing the size of the govermment in the future, may prove to be beneficial.

Dr. Rogoff also commented on the Yen depreciation and its impact on Korea. The Yen has affected household purchasing power and he suggested that long-run reforms will be key to easing the sting for Korea. He noted that they must look to cutting red tape in the legal and financial realms to see growth which will surpass the harm of Yen depreciation.

“Koreans have been leaders in science, entertainment, and are a famously creative people but you don’t see the type of small business creation you’d expect,” he said.

The overall consensus from the panelists was that job creation is the main issue in advanced economies. Mr. Frenkel summed up the formula for a productive growing economy in the future of the developed world.

by Janet Wi

October 14, 2014

At the 15th Annual World Knowledge Forum, Kenneth Rogoff, the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, expressed confidence that the current global financial crisis is not an instance of secular stagnation, but rather a typical trend of post-financial crisis trauma that has occurred for the past 800 years.

In response to the growing public concern that economic growth is slowing down in a way that will cause a train wreck of problems in the future, Mr. Rogoff sais, “The idea that we’re in some kind of permanent growth trap is very misleading.”

Increased pessimism amongst the public, particularly in the idea that the middle class is no better off than 25 years ago and that capitalism is not working, is something that Mr. Rogoff takes issue with.

“Capitalism is not only working,” he said, “but this has been the best three decades in its history.”

Although some economists have stated that the current issue lies in secular stagnation, or sustained lack of demand, Mr. Rogoff believes this mischaracterizes several important elements. While these economists use statistics of real interest rates dropping significantly as evidence of a failing economy, Mr. Rogoff stressed that a graph taken from the same time period showing high stock market rates could just as easily be used to prove the opposite.

Without using multiple approaches and weighing multiple variables, Mr. Rogoff said, these economists are not able to get the full picture.

“Some people seem to think they have the model of the world that is the correct one,” he said. “I think it’s wildly premature to say that [the crisis is] secular stagnation.”

Mr. Rogoff went further to criticize European governments in particular.

“[They are] putting enormous pressure on their banks to hold European assets… obviously that’s not good for risk sharing,” he said.

In contrast, he praised China for recovering from debt, citing the sharp rise in the country’s credit rate as a concrete example becoming a stronger world power. Mr. Rogoff predicted that China will eventually surpass the US as a superpower, adding that the Chinese Renminbi has the potential to become the reserve currency.

Mr. Rogoff showed concern for the state of the South Korean economy. Despite having a good number of large firms that are competitive in the international sphere, he said, there is a lack in competition among the smaller parts of the economy. He added that it is much less dynamic than is seen in other advanced economies worldwide.

Due to high levels of regulation and risk, there are difficulties in starting new firms, which hinders new businesses from emerging into the market. This is an issue, according to Mr. Rogoff, because emerging markets have been a source of global growth.

Even with these concerns, Mr. Rogoff stated that this is a time of accelerated innovation, not fading innovation. He showed optimism for the economy as a whole.