Are Advanced Economies Increasingly Reliant on Speculative Activities in Financial Markets and Fiscal Stimulus to Nudge Anemic Growth Upwards?

Abstract

Perceptions of economic trends and growth rates around the world over the past two decades, especially in advanced economies, suggests that the world is in a period of low growth without external stimulus delivered via speculative activities in the financial markets or fiscal stimulus. But is the intuition backed up by real data? If real, is the concept specific to the contemporary environment where there is increased (and increasing) integration of the world’s financial markets coupled with a global savings glut and a shortfall in aggregate demand? More precisely, does the observed phenomenon describes periodic gyration in economic activities, local or global; or is it just a name to annotate a period of economic history unlikely to repeat itself? In addition, what are the factors that have potentiated (observed) surreal economic readout: rapid growth followed by sharp drop in economic activities in many emerging economies over the last decade? Is herd behavior, bundled structured products or bonds (of questionable risk profile), high speed trading and dark pools, alone or in combination, pushing trading activities on various financial markets to artificially high levels? Do the above mask deeper problems such as low rates of wage growth (relative to inflation), which manifest, at the population level, as reasonable GDP growth rates, but increased income inequality?