My Authors
Read all threads
The world economy entered the COVID-19 crisis with very low interest rates and very high debt levels, which will complicate policy efforts to boost the economy. We released two @nberpubs papers that address how this happened and what it means for policy (@AtifRMian @ludwigstraub)
Both studies point to the rise in income inequality as a central culprit. The rich save more than the non-rich, and therefore a rise in income inequality creates a "saving glut of the rich" which has fueled the rise in household and gov debt since the 1980s.
When non-rich households and governments borrow from the rich, it creates a transfer of future resources from those who spend to those who save. This puts downward pressure on aggregate demand, and interest rates must fall in an effort to keep demand high.
Eventually, as inequality continues to rise, interest rates cannot fall further, and the economy enters a zero interest rate, low growth, high debt liquidity trap, which we call a debt trap. In a debt trap, fiscal and monetary policy don't work, and likely make the problem worse
In the indebted demand model, policies that redistribute (progressive income taxes, wealth taxes) are effective at helping economy escape a debt trap. That is, redistribution becomes a central tool for macroeconomic policy. See Section 8 of indebted demand paper in particular.
These two studies were originally written before the COVID-19 crisis, but we believe the policy conclusions are even more relevant now, as the COVID-19 crisis has already lowered interest rates even further, and the rise in gov debt will be immense.
Missing some Tweet in this thread? You can try to force a refresh.

Enjoying this thread?

Keep Current with Amir Sufi

Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

Twitter may remove this content at anytime, convert it as a PDF, save and print for later use!

Try unrolling a thread yourself!

how to unroll video

1) Follow Thread Reader App on Twitter so you can easily mention us!

2) Go to a Twitter thread (series of Tweets by the same owner) and mention us with a keyword "unroll" @threadreaderapp unroll

You can practice here first or read more on our help page!

Follow Us on Twitter!

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just three indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3.00/month or $30.00/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!