The world is facing the prospect of an extended period of weak economic growth. The best way to avoid such an outcome is to figure out how to channel large pools of savings into productivity-enhancing public-sector investment.
Productivity gains are vital to long-term growth, because they typically translate into higher incomes, in turn boosting demand. That process takes time, of course — especially if, say, the initial recipients of increased income already have a high savings rate. But with ample investment in the right areas, productivity growth can be sustained.
The danger lies in debt-fueled investment that shifts future demand to the present, without stimulating productivity growth. This approach inevitably leads to a slowdown, possibly even triggering a financial crisis like the one that recently shook the United States and Europe.
With your current subscription plan you can comment on stories. However, before writing your first comment, please create a display name in the Profile section of your subscriber account page.