RIETI Report December 2017

World's Great Excess of Supply

Since the bursting of the economic bubble in 1990, Japan has had to spend significant time processing the excess supply of labor, production capacity, and debt. What has been happening to the world economy since the collapse of Lehman Brothers is, indeed, the global version of Japan's post-bubble struggles, characterized by the structural excess of labor, goods, money, and energy. In the December issue of the RIETI Report, we present the summary of the BBL seminar "World's Great Excess of Supply" featuring Chairman Atsushi Nakajima.

Nakajima introduces his book Era of Large Excess Economy, which examines the world's supply-demand balance as an underlying factor of intensifying sentiments for anti-globalization and curbing migration, as seen in developments such as Brexit and the election of Donald Trump as the U.S. president. He then warns of the era of large excess economy, with structural excess in the balance of supply and demand for labor, goods, money and energy, as well as discusses the resulting changes in the world economy with slower growth and economic disparity that is increasing discontent among both developed nations and emerging economies and potentially triggering friction in international trade and foreign exchange. He provides some suggestions for a breakthrough for the world economy regarding this situation, and explains initiatives taken by other countries in response. Nakajima addresses the Japanese economy specifically and offers some strategic points for it to get back on its feet. Finally, the BBL seminar ends with a Q&A session on various related topics.

This month's featured article

World's Great Excess of Supply

NAKAJIMA AtsushiChairman, RIETI

World economy with intensifying trend against globalization

My recent book, Era of Large Excess Economy, examines the world's supply-demand balance as an underlying factor of intensifying sentiments for anti-globalization and curbing migration, as seen in developments since 2016 such as Brexit (Britain's decision to leave the European Union) and the inauguration of Donald Trump as the U.S. president. The sudden drop in crude oil prices in early 2016 and the ongoing negative interest rate trend in Japan and Europe could also be explained from the perspective of excess supply of energy and money.

Since the bursting of the economic bubble in 1990, Japan has had to spend a lot of time processing the excess supply of labor, production capacity and debt. What has been happening to the world economy since the collapse of Lehman Brothers is, indeed, the global version of Japan's post-bubble struggles, characterized by the structural excess of labor, goods, money, and energy.

Changing the world economy

In the 2000s, low- and middle-income economies enjoyed some of the strongest growth in the post-war era until the collapse of the economic bubble. This was largely attributed to the fierce increase in exports from emerging economies, mainly in Asia, in response to the establishment of a global framework facilitating greater industrial production, led by China. Other factors include the subprime lending boom in the United States, the Chinese economy experiencing 10% growth, and price surge of crude oil and other resources. The emerging and developing economies' share in world trade also rose rapidly up until about 2010.

However, such factors that supported the strong growth of the world economy have gone and left developed nations and emerging economies to compete for a greater share in world trade. While emerging and developing economies have managed to restore a positive supply-demand balance, developed nations continue to suffer excess supply and demand shortfall.

In the post-Lehman world economy, the slower growth and economic disparity between countries have increased discontent among both developed nations and emerging economies, potentially triggering friction in international trade and foreign exchange. This tendency is becoming particularly evident in the United States, which is suffering from a massive international trade deficit.

To read the full text
https://www.rieti.go.jp/en/events/bbl/17051201.html

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