Thread by @michaelxpettis

I think Richard Koo is right about the failure of monetary easing. In our “Japanified” world, slow growth in most major economies is caused mainly by “the disappearance of borrowers, not by the lack of...
ft.com/content/e8bc69… via @financialtimes

@FinancialTimes ...lenders.” In that case monetary expansion is a way of addressing a demand-side problem with a supply-side solution. This is true in China, too. Koo’s solution is for the government, as borrower of last resort, to borrow heavily to fund productive investment, for example in...

@FinancialTimes ...much-needed infrastructure. That distinction is important: it must fund productive investment because if debt rises to fund consumption or non-productive spending, it will itself constrain growth. But another, perhaps better, solution – especially for China, where there is...

@FinancialTimes ...no longer enough productive investment to fund – is to take income from the rich, from businesses that hoard cash, and (in China’s case) from governments, and redistribute it to ordinary households. This would cause a surge in unlevered consumption, which would itself...

@FinancialTimes ...cause investment to rise once businesses are confident of rising demand. For nearly 30 years Japan has been teaching us what doesn’t work: we need to fix the demand side, not the supply side.