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Some thoughts about secular stagnation | 107 comments (107 topical, editorial, 0 hidden)
use savings glut to finance public investment (4.00 / 3)
Why the future looks sluggish - The glut of savings in leading economies has become a constraint on demand | Martin Wolf, Financial Times
The glut of savings, then, has become a constraint on current demand. But since it is connected to weak investment, it also implies slow growth of prospective supply. This difficulty predates the crisis. But the crisis has made it even worse.

So what is to be done? One response to an excess of desired savings over investment would be even more negative real rates of interest. That is why some economists have argued for higher inflation. But that would be hard to achieve, even if it were politically acceptable. Another possibility, stressed by Andrew Smithers in The Road to Recovery, is to tackle obstacles to corporate investment head-on. His biggest villain is the "bonus culture", which encourages management to manipulate stock prices, via buybacks, rather than raise productive investment.

Yet another possibility, discussed by Mr Summers and supported by many economists (including myself), is to use today's glut of savings to finance a surge in public investment. That might be partly linked to a shift to lower-carbon growth. Another possibility is to facilitate capital flows to emerging and developing countries, where the best investment opportunities must lie. It makes no sense for so much of the world's savings to seek investment opportunities where they do not apparently exist and shy away from places where, one hopes, they do.



Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Tue Nov 19th, 2013 at 05:09:37 PM EST
Re: use savings glut to finance public investment (none / 0)
The savings glut is a SYMPTOM of the loss of confidence in the future by investors. See Systemic Fear and the Future of Capitalism

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Nov 19th, 2013 at 11:56:28 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 2)
Be that as it may, what Wolf says --

use today's glut of savings to finance a surge in public investment. That might be partly linked to a shift to lower-carbon growth.

-- lines up nicely with what afew wrote above:

There is expansion in creating the conditions for reduced (finite) resource use, ie creating infrastructure for the energy transition, building new and refitting old constructions to be as energy-neutral as possible, transforming agriculture  from its current trend of rapid destruction of soil fertility and water to practices that actively foster those resources (yes, there is a gain to be had there).

unless I read Wolf and/or afew incorrectly.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Wed Nov 20th, 2013 at 04:15:45 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 3)
No, you didn't read Wolf or afew incorrectly, so far as I can see. But my point is that we cannot expect the private sector to so use the savings glut. They are either too afraid due to uncertainty, conflicted by allegiance to fossil fuel interests or both. To fossil fuel interests the end of fossil fuel use seems more threatening than global warming - viewing the world as they do - through their pocketbook.

The solution is for governments to do the investment directly and at current interest rates. It can either tax those who are holding the savings glut or just ignore that money and create new money, well, at least those sovereign in their own currency can. The Eurozone would be fucked on that score, but what else is new?

My view is that global warming provides a challenge equivalent to that provided by WW II. It was when the business sector in the US and the UK and Commonwealth saw that their countries were committed to winning the war at any cost that the economies sprang back to life. The same would be true for a full on commitment to fighting global warming. We would get a twofer: put the economy back on track to full employment and do everything we can to save the planet. Sounds like an obvious winner to me.

But to the fossil fuel industry that would look like THE END. But that is far from the case, even for them. Their reserves could be even more valuable as feedstock for high value plastics, even if at a reduced level of extraction and resultant revenue. But they have assets and expertise that likely could be redeployed profitably as well.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 20th, 2013 at 04:36:17 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
Agree with this:

The solution is for governments to do the investment directly and at current interest rates. It can either tax those who are holding the savings glut or just ignore that money and create new money, well, at least those sovereign in their own currency can.

and this:

We would get a twofer: put the economy back on track to full employment and do everything we can to save the planet.

and this:

But they have assets and expertise that likely could be redeployed profitably as well.

On this:

But my point is that we cannot expect the private sector to so use the savings glut.

Can't we influence them to start investing their savings glut productively by (1) penalizing savings over a certain amount and/or a certain amount of time; (2) taxing certain types of consumption and investment (e.g. on fossil fuels and their derivatives), and (3) providing incentives to invest on socially and environmentally "positive" investments, e.g. renewable energy?

Though on that last point, there is this allegation:

Like Mao urging peasants to melt down their pots, pans and farm tools to turn China into a steel-producing superpower overnight, Germany dished out subsidies to encourage homeowners and farmers to install solar panels and windmills and sell energy back to the power company at inflated prices. Success--Germany now gets 25% of its power from renewables--has turned out to be a disaster.

As Germans rush to grab this easy money, carbon dioxide output has risen, not fallen, because money-strapped utilities have switched to burning cheap American coal to provide the necessary standby power when wind and sun fail. ...

Germany Reinvents the Energy Crisis - A love affair with renewables brings high prices, potential blackouts and worries about 'deindustrialization.'
Holman W. Jenkins, Jr., Wall Street Journal




Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Wed Nov 20th, 2013 at 05:03:04 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 3)
Behind paywall, so I don't have to read the argument before deconstructing.

First, electrical power by source in Germany, just so we know what we are talking about.

Now, Wall Street Journal would apparently have us believe that renewables steers the coal plant managers choices in coal purchases. Not bloody likely, what they mean is that coal is getting dirtier and not even getting huge rewards for it.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Wed Nov 20th, 2013 at 05:22:37 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
Try clicking on the article through these Google search results to view the article.

I suspect it is more ideologically (and financially) driven propaganda than fact-based argumentation.   But,

Consumption from renewable sources and hydropower in China grew by a quarter in 2012.

But that growth came from a low baseline, and was more than offset by an increase of 6.4 percent in coal, which has a higher baseline. Coal accounted for 68 percent of Chinese energy consumption in 2012.

Other significant CO2 increases occurred in Japan (+6.9 percent) and Germany (+1.8 percent), pushed by a switch to coal to offset dependence on nuclear.

"CO2 emissions +2.2% in 2012, driven by China and coal"
Phys.org

In 2012 many countries increased dependence on coal. German emissions increased 1.8 per cent in 2012, with coal growing at 4.2 per cent.

"Coal continues to dominate global carbon emissions"
AlphaGalileo

I think the thrust of the WSJ article is that wind and solar are still too inconsistent energy sources, and coal -- being abundant and cheap -- is the easy, convenient and logical thing to turn to to make up for that shortcoming, especially after dropping nuclear.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Wed Nov 20th, 2013 at 06:56:48 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 2)
A quick look at askod's graph leads me to ask: where is Germany to find relief? While I am sure that Powder Basin coal miners and US railroads are more than happy to sell Germany coal, but it is unlikely to be a very good deal. As capital costs are retired and wind power continues to decline in price it will have tremendous advantages over coal, even before considering the carbon. There is no fuel costs for renewables. And then there is the reaction of the German people.

I will await the response of Crazy Horse, DoDo or Jerome for a better answer. But I remain suspicious of anything the WSJ might have to say about energy. It does seem that the cost of energy for manufacturing, as opposed to residential uses is posing a problem in Germany and industry, in conjunction with Merkel's conservative government, when it emerges, could do damage to Germany's world leading wind energy manufacturing industry. But where else can Germany get affordable power. Wind is roughly competitive with coal in the USA now, and doesn't have to include the cost of sea shipment, but no new coal plants are being built. This indicates that the issue is not based on the fundamental costs of the two sources so much as on who gets subsidized by whom.


"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Nov 20th, 2013 at 08:21:44 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
I guess the biggest take-away for me ― not only from the  WSJ, but from Phys.org and AlphaGalileo ― is that "German emissions increased 1.8 per cent in 2012, with coal growing at 4.2 per cent".

It sounds like you think this is a temporary phenomenon and in the long run carbon emissions will go down as renewable power becomes more competitive and thus widespread in Germany.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Thu Nov 21st, 2013 at 09:16:32 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
It sounds like you think this is a temporary phenomenon...

That depends on whether energy incumbents in Germany can combine with industry wanting cheap power to kill the German wind energy business. Stay tuned.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Nov 22nd, 2013 at 12:24:15 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 1)
You need to be a little careful with the electricity portfolios of small European countries (and in the context of electricity, the only not-small European country is Russia). Europe has a lot of cross-border load balancing, with France a major buyer of intermediate load, and Germany a major supplier. Since intermediate load is typically more CO2-intensive than base- and peak load, part of the German increase is probably attributable to increases in other parts of Europe (conversely, the French boast that their all-nuke strategy is carbon-neutral is... not totally true).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 22nd, 2013 at 04:11:47 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
part of the German increase is probably attributable to increases in other parts of Europe (conversely, the French boast that their all-nuke strategy is carbon-neutral is... not totally true).

How much is attributable to that, and how much is attributable to burning coal imported from the USA.  There must be figures for that somewhere.

Let's talk about energy. You say alternative energy can't scale. Is there no role for renewables?

I like renewables, but they move slowly. There's an inherent inertia, a slowness in energy transitions. It would be easier if we were still consuming 66,615 kilowatt-hours per capita, as in 1950. But in 1950 few people had air-conditioning. We're a society that demands electricity 24/7. This is very difficult with sun and wind.

Look at Germany, where they heavily subsidize renewable energy. When there's no wind or sun, they boost up their old coal-fired power plants. The result: Germany has massively increased coal imports from the US, and German greenhouse gas emissions have been increasing, from 917 million metric tons in 2011 to 931 million in 2012, because they're burning American coal. It's totally zany!

― Vaclav Smil quoted in This Is the Man Bill Gates Thinks You Absolutely Should Be Reading, Wired



Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Mon Nov 25th, 2013 at 03:58:14 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 1)
Energy transitions are slow because we are sitting with our thumbs up our asses and waiting for them to happen automagically, instead of devoting an actually meaningful share of the gross planetary product to making it happen.

Pissing around with a few hundred billion here and there just isn't gonna cut it.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Nov 25th, 2013 at 06:02:23 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 1)
This article argues that the increase in coal is a short-term "bump" in the road, with three primary reasons:

... The increased coal burn that has occurred (and it has) comes from existing units. But this is due to short term economic factors, not a long term revival of coal's economics (which are terrible). In the EU, coal use has been growing since 2009 (after a steep drop in the preceding two years) but it is still below 2007 levels and well below increases in renewable energy generation.

There's a lot of reasons for this short-term bump. The most important are: 1) strict new air pollution rules that ensure a huge amount of coal-fired capacity will be retired or constrained by 2016; 2) rock-bottom carbon prices; and 3) national level coal policies. But some of these same factors will conspire to have the exact opposite effect in the long run. ...

"Europe's 'Coal Renaissance' Masks Industry Downfall"
by Justin Guay, Washington Representative, Sierra Club



Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire
by marco on Tue Nov 26th, 2013 at 01:31:54 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
"1) strict new air pollution rules that ensure a huge amount of coal-fired capacity will be retired or constrained by 2016"

Here in the UK, the usual opinion among energy consultants (those I've spoken to, at any rate) is that these rules will be ignored and the plants will stay online.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Tue Nov 26th, 2013 at 02:51:17 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
The easiest solution would be to produce the power outside Germany, in places where the climatic/political conditions are more amenable to it, and then run HVDC lines.

Clean Options, alphabetical:

Advanced nuclear : Build molten salt reactors in the Czech republic, France. (these are two of the nations with the most actual, current, research into this)

Boring nuclear: Same, but with PWR's.

Renewable: Solar: Longer HVDC lines. Into north africa. Lots, and lots of solar. Mostly this gets you increased reliability and removes the "winter" problem.

Renewable: Wind: North sea floating windmills, produced shipyard style. Domestically, build http://eduard-heindl.de/energy-storage/energy-storage-system.html to level out supply.

by Thomas on Mon Nov 25th, 2013 at 10:04:35 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
Call me irrational and/or simple-minded, but after Fukushima, I am completely anti-nuclear.

At the top of your list, I would add two options:

  • reduction in consumption
  • efficiency (e.g. better insulation)

Passivhaus construction -- which is even spreading to China now -- is in line with these two.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

by marco on Mon Nov 25th, 2013 at 04:04:42 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 2)
Reductions in overall electricity consumption are not going to happen.
Cleaning up the rest of the economy - transport, chemical and industrial processes currently run of fossil inputs and so on means that the grid is going to have to supply a lot more juice. Currently electricity is roughly a third of our energy use, in a zero-emission economy, it will be well north of ninety, with the remainder being things like food production waste based fuels for niche applications and ambient heat sucked in by heat pumps. So even large efficiency gains still imply electricity production that is overall quite a lot higher than at present.
So production plans need to be scaled for that, and the main point of efficiency gains is to limit just how much additional cabling you are going to have to bury.
by Thomas on Mon Nov 25th, 2013 at 04:20:28 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 1)
Some of the extra consumption isn't actually going to impact the last-mile grid too badly. If we go down the path of "all electric motoring, and all electric home-heating via heatpumps" (you cant do district heating off a windmill.) then that demand can all be time-shifted trivially, so existing wiring out to residences would need only modest upgrades. But the production side? That is going to need beefing up. A lot.
by Thomas on Mon Nov 25th, 2013 at 04:38:01 PM EST
[ Parent ]
Re: use savings glut to finance public investment (4.00 / 2)
You're irrational and/or simple-minded.

Like me.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Nov 25th, 2013 at 04:21:10 PM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 1)
Can't we influence them to start investing their savings glut productively by (1) penalizing savings over a certain amount and/or a certain amount of time; (2) taxing certain types of consumption and investment (e.g. on fossil fuels and their derivatives), and (3) providing incentives to invest on socially and environmentally "positive" investments, e.g. renewable energy?

  1. Yes, this is what inflation does for you. To generate inflation, in the present environment, the only tool available (barring explicit price controls) is public spending.
  2. This will not encourage productive investment. It will discourage garbage investment. Which is also generally a good idea, but slightly tangential to the point.
  3. Yes, but with the exception of certain market regulations (feed-in laws, etc.) which you want to impose anyway, this is basically just outsourcing the public spending from point 1).

- Jake

Friends come and go. Enemies accumulate.
by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Nov 21st, 2013 at 05:31:28 AM EST
[ Parent ]
Re: use savings glut to finance public investment (none / 0)
And unfunded direct public spending is a LOT easier to pass than increasing taxes on the wealthy. Which would the wealthy prefer? Oh, for New Deal attitudes about marginal tax rates.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Nov 25th, 2013 at 08:19:47 PM EST
[ Parent ]

Some thoughts about secular stagnation | 107 comments (107 topical, 0 editorial, 0 hidden)
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