The Death of Demand
Mike Waterson and Raymond Cheung
Governments throughout the developed world are examining ways to cut the giant public-sector budget deficits that have opened up following the financial crisis. It is widely hoped that a combination of budget cuts and re-emerging economic growth will reduce the problem to manageable dimensions.
This paper suggests that policies dependent on a re-emergence of economic growth to manage deficit situations may in many cases be over-optimistic, as economic growth is likely to be very low in many OECD countries over the next decade. Government forecasts are frequently optimistic, but in...