The secular stagnation equilibrium

By Gilles Le Garrec et Vincent Touzé

The economic state of slow growth and underemployment, coupled with low inflation or even deflation, has recently been widely discussed, in particular by Larry Summers, under the label of “secular stagnation”. The hypothesis of secular stagnation was expressed for the first time in 1938 in a speech by A. Hansen, which was finally published in 1939. Hansen was worried about insufficient investment and a declining population in the United States, following a long period of strong economic and demographic growth. Continue reading “The secular stagnation equilibrium”

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Redistributive policies and the demand for fairness

par Gilles Le Garrec

Six years after the onset of the Great Recession, France’s economic situation is still gloomy: growth is sluggish, there are almost 3.5 million unemployed in mainland France, and the public debt is approaching the threshold of 100% of GDP (95.4% according to the 2014 Maastricht criteria according to the OFCE). One cause for satisfaction has been the ability of the social protection system to mitigate the increase in income inequality. The Gini index [1] calculated on the labour force (population age 18 to 65) shows that, between 2008 and 2011, inequality in market income increased by 2.9 percentage points while inequality in disposable income increased by only 1.8 points. To achieve this, social spending rose by 0.8 point, bringing it to 19% of GDP excluding old-age pension expenditures [2]. However, one of the fears associated with the crisis (due to its duration and magnitude) is that France can no longer afford to provide people with such a high level of social protection. Is this fear justified? Not necessarily. Continue reading “Redistributive policies and the demand for fairness”

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Increased longevity and social security reform: questioning the optimality of individual accounts when education matters

par Gilles Le Garrec

In 1950, life expectancy at birth in Western Europe was 68 years. It is now 80 years and should reach 85 by 2050. The downside of this trend is the serious threat that is hanging over the financing of our public retirement systems. Financed on a pay-as-you-go (PAYG) basis, i.e. pension benefits are paid through contributions of contemporary workers, the systems must cope with an increasingly large number of pensioners compared to the number of contributors. For example, leaving the average age of retirement unchanged in France would lead to a ratio of pensioners to workers (the dependency ratio) of 70.1% in 2040, whereas this ratio was 35.8% in 1990. Changes are unavoidable. Maintaining the current level of benefits within the same system in the near future requires to increase either the contribution rate or the length of contribution (by delaying the age of retirement). Continue reading “Increased longevity and social security reform: questioning the optimality of individual accounts when education matters”

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