The latest issue of the IMF World Economic Outlook is out. Perhaps the most interesting part is Chapter 2: Global Imbalances: A Saving and Investment Perspective. What is clear is that people have twigged that a glut of savings is relative to something (because one couldn't simply exist per-se, that's Econ 101), and that something is, of course, an investment opportunity dearth (again more Econ 101). The interesting question, the one which should have economists sitting up in their seats is why this state of things might have come to be. Here however the 'experts' are rather less forthcoming. Unless that is, you go look at Chap 2 box 2.3 Impact of Demographic Change on Saving, Investment, and Current Account Balances, prepared of course by non other than Ralph Bryant and Marc de Fleurieu.
How what they have to say relates to the rest of what goes on around them I leave to the discerning reader to decide.
Interestingly they do say this:
There remain, however, some uncertainties about saving behavior in the later stages of the life cycle. Studies based on macroeconomic data generally support the predictions of life-cycle approaches (for example, an increase in the elderly dependency ratio - which shows the population aged 65 and older as a share of the working-age (age 15–64) population reduces saving). Studies based on microeconomic data,however, have cast some doubt on the extent to which the elderly dissave (Poterba, 2004). This may be because simplified applications of the life-cycle approach do not adequately take into account the desire of the elderly to leave bequests, or their uncertainties about their lifespan after retirement and the financial support they will need. Some empirical studies based on household survey data do not adequately incorporate the public-pension portion of elderly incomes, and this is why they may appear at odds with life-cycle behavior (Miles, 1999).
I think they are getting to the heart of the matter here. This is not a theoretical issue, but rather an empirical one. And the model needs a lot better specification in this area.
But, dear, oh, deary me. All this does put me at some odds it seems with Brad Setser and Nouriel Roubini.
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