Why we have low post-crisis growth

On 6 March, Kiyohiko G. Nishimura, Professor of Economics at the University of Tokyo, gave a SAFE Policy Lecture. The event was hosted and moderated by Policy Center Program Director Hans-Helmut Kotz. The former Deputy Governor of the Bank of Japan argued that, after the global financial crisis, developed economies have only recovered slowly and are not yet back to pre-crisis growth rates, despite massive monetary easing programs that are in place.

According to Nishimura, the low growth is caused by three simultaneous global shifts. First, there is persistent fallout from the “great property bubbles/busts” and financial crises in developed economies. Huge capital losses and severe balance-sheet adjustments caused persistently weaker demand and the efficiency of financial intermediation was badly damaged, possibly for an extended period of time. Second, information and communication technologies have had a negative impact on employment in developed and emerging economies, Nishimura said. Traditional medium-skilled jobs are vanishing, he argued, because they are being replaced by technologies. Therefore, more workers are employed in low-paid, temporary jobs, leading to lower demand of this group, which used to have a higher propensity to consume. Third, the excessive optimism for economic growth caused by baby booms and medical advances has come to an end. When this optimism was coupled with financial innovations enabling easy credit – as was the case in Japan, the US, the UK and Ireland – it caused vast credit expansion and thus property bubbles.

In Nishimura’s view, it is of utmost importance to avoid asset price bubbles in the first place. Further, he demanded that policy makers should adjust to the decreasing effectiveness of conventional monetary policy tools and that they have to respond to the heightened uncertainty with regard to the side effects of unconventional monetary policy measures.