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Michael Pettis

2/7 productivity growth, with the latter having pulled ahead." Even more so in China. The problem is that in advanced and developing economies in which investment isn't constrained by scarce saving, consumption must rise in line with productivity to justify higher production.

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Michael Pettis

3/7 If it doesn't, inventory will pile up as production exceeds demand, and producers will eventually cut back, and so lay off workers. Unemployed workers, of course, will further reduce their consumption, thus exacerbating the demand problem.

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Michael Pettis

4/7 The only way to bridge this gap, at least temporarily, is with rising household and fiscal debt, and so it should come as no surprise that once wage growth and productivity growth split apart, sometime in the late 1970s, fiscal and household debt has surged.

Ответ для Michael Pettis
Michael Pettis

5/7 Many economists argue that the way to restore balance is through fiscal austerity, but this makes little sense. If fiscal spending is reduced, either household debt must rise by enough to compensate, which is worse, or else demand will fail to keep pace with supply, and...

Ответ для Michael Pettis
Michael Pettis

6/7 businesses must cut back on production, which in turn means more unemployment and even more downward pressure on demand. This is the same problem the US faced in the 1930s, and it is the what Marriner Eccles refers to in his 1933 testimony to Congress. x.com/michaelxpett...

Michael Pettis (@michaelxpettis) on XMarriner Eccles 1933 testimony to Congress: "It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anyth...x.com
Ответ для Michael Pettis
Michael Pettis

7/7 The only sustainable solution is for wage growth to accelerate by enough to reverse the many decades during which it fell behind productivity growth. But, as I explain below, our current global trade regime makes it hard for wage growth to accelerate. x.com/michaelxpett...

Michael Pettis (@michaelxpettis) on XProspect: "While the labor share of the national income was roughly 65 percent during the 20 years following World War II, according to a recent report from the New York Federal Reserve Bank, it then ...x.com