François Geerolf Mentioned in The Economist

Professor François Geerolf is mentioned in The Economist magazine, in an article entitled “Kicking the can down an endless road“, for his work on dynamic inefficiency. One of the six big economic ideas chosen by the Economist in the summer of 2017, is this idea that some types of Ponzi schemes, such as pay-as-you-go systems, or public debt, are not always detrimental to the economy. In what are refereed to as overlapping-generations models, there can be such a thing as too much savings (or underconsumption), a situation called “dynamic inefficiency”. When the marginal product of capital (r) is lower than the rate of GDP growth (g), public debt allows the government to increase consumption without needing to ever raise more taxes in the future: in such a situation, the ratio of debt to GDP can stay constant, or even decrease, without any future rise in revenues. François Geerolf has shown that the condition for dynamic inefficiency is satisfied for Japan and South Korea, and probably for other advanced economies as well. In an international context, his empirical work lends support to the “savings glut” hypothesis (articulated by Ben Bernanke in 2005), this idea that countries with current account deficits such as the United States are consuming more than they produce to make up for deficient global aggregate demand.