Error message

Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in _menu_load_objects() (line 579 of /var/www/drupal-7.x/includes/

Pope Francis and the Steady State Economy

by Brian Snyder

Let’s play a game of “who said it.” I’ll give you quotes from either For the Common Good (by Herman Daly and John Cobb), or Let Us Dream (by Pope Francis). You guess who wrote it:

  1. “…in the wealthier parts of the world, the fixation with constant economic growth has become destabilizing, producing vast inequalities and putting the natural world out of balance.”
  2. “Then ‘God’ became redundant and disappeared. The human soul alone was sacred. The rest was atoms in a void. For some, the soul too was part of this meaningless physical world; nothing was sacred.”
  3. “It is not enough to…think in terms of the greatest happiness of the greatest number as if the interests of the majority trump all other interests. The common good is the good we all share in, the good of the people as a whole, as well as the goods we hold in common that should be for all.”
  4. “…human life is lived most richly and most fully when it is lived from God and for God.”
  5. “…It is time to explore concepts like the universal basic income (UBI) also known as the ‘negative income tax’: an unconditional flat payment to all citizens…”

You may be surprised that the odd-numbered quotes come from Pope Francis; the even-numbered are from Daly and Cobb. Of course, Pope Francis neither cites Daly and Cobb, nor does he use the term “steady state economy,” yet it’s clear he’s acknowledging limits to economic growth in developed nations. And his message is at least as radical as Daly and Cobb:

“When shares of major corporations fall a few percent, the news makes headlines. Experts endlessly discuss what it might mean. But when a homeless person is found frozen in the streets behind empty hotels, or a whole population goes hungry, few notice; and if it makes the news at all, we just shake our heads sadly and carry on, believing there is no solution.”

Livable Land, Lodging, and Labor

A few pages later, he lays out a solution, which translated to English is the three L’s: land, lodging, and labor. Francis argues that all humans are entitled to the three L’s, but his use of these terms differs from colloquial use.

Herman Daly speaking

Herman Daly educating and edifying with a moral vision of steady-state economics (Image: CC BY-NC 2.0, Credit: chesbayprogram)

To Francis, land is not merely the means of production that it is to economists. Land is the earth, and he lays out a biospheric ethic: “We are earthly beings, who belong to Mother Earth… We need now a time of Jubilee, a time when those who have more than enough should consume less to allow the earth to heal, and a time for the excluded to find their place in our societies.”

On lodging, Francis argues we are not simply entitled to a place to sleep, but must be concerned about our entire “oikos” (another word favored by Daly and Cobb), our “house” in a sweeping sense. He argues that we need to build clean, livable urban areas to contrast with the increasingly polluted cities of the developing world.

Finally, Francis argues that labor is a “right and duty for all men and women” but it shouldn’t be just a means of earning an income. Rather, labor should be a means of expression, fulfilment, and contribution to the common good. “Business isn’t just a private enterprise; it should serve the common good.” (“Common good” is another theme of Daly and Cobb; all the way unto their book title.)

Mass Morality

Francis offers a few specifics—he endorses UBI and sustainable development goals, and offers some praise for renewable energy—but Let Us Dream is not a policy paper. It’s derived from an encyclical, intended to clarify doctrine for the largest religious denomination on the planet. Now in the book form of Let Us Dream, Francis sketches the broad outlines of a theological vision with remarkable parallels to “steady statesmanship.”

Pope Francis speaking to religious community

Pope Francis calls implicitly for a steady state economy with human dignity and care for Mother Nature. (Image: CC BY-NC-SA 2.0, Credit: Monica de Argentina)

Unlike some economists who assume an air of omniscience, Francis writes with modesty, ever clear that he has not all the answers. He knows he’s not God. But he does have a unique pulpit and moral authority. In Let Us Dream, Francis uses that moral authority in edifying prose to clarify that the current economy is ecologically harmful and leaves too many people out in the cold. Therefore, according to Francis, our economic system is immoral and decidedly un-Christian, and we have a responsibility to change it. Further, he clarifies that limiting economic growth in the wealthy world is a major component of the necessary change.

What I find most interesting about Let Us Dream is that it is an almost entirely moral argument. It does not cite dozens of studies about ecological crises, nor does it discuss economic theories or the merits of utilitarianism and deontology. He doesn’t even quote scripture at much length. Instead, to paraphrase, Pope Francis says, “Y’all, this is wrong.” He asks us to simply acknowledge what we all know to be true, what we can all see with our own eyes—that our economy is brutal for many people and damaging to the planet. We don’t really need sophisticated climate models or data from the World Bank to know when something is broken. Francis is asking us to open our eyes, acknowledge what we see, and do something about it.

What Should We Take from Let Us Dream?

For me, it is to stop focusing on the science and economics, at least in public discourse. I don’t believe people will make changes in their daily lives because of the output of an Earth systems model, an integrated assessment model, or any other 21st century means of counting angels on heads of pins.

People know Earth is a mess and they know the economy is a disaster; they don’t need to be convinced. They need to be motivated. I’ve sat through a lot of science, and I have never once left a lecture motivated to do anything but weep or sleep.

Thinking back to the periods of change in the past—Civil Rights, Abolition, Prohibition, Women’s Rights—people were motivated to march, to vote, and more importantly to reconsider the status quo by witnessing suffering around them and through the media. These people were led by religious clergy and laypeople, not scientists and economists.

Of course, steady-state economics has always been deeply linked with religion, or at least Christianity. Daly and Cobb discussed the religious justification for the steady state explicitly, as the even-numbered quotes illustrate. But that religious justification has been subsumed by scientific reasoning. Francis exposes that as impotent human folly.

Brian Snyder HeadshotBrian Snyder is Assistant Professor in the Department of Environmental Sciences at Louisiana State University, CASSE chapter director, and regular contributor to the Steady State Herald.

The post Pope Francis and the Steady State Economy appeared first on Center for the Advancement of the Steady State Economy.

Facebook and Its Religion of Growth

Published by Anonymous (not verified) on Sat, 23/10/2021 - 1:16am in
by Taylor Lange

There was a time when I dreamt of working at Facebook. I was less intrigued by the software development side than with studying the exchange of information and the cultural evolution occurring through online social networks. One of my research interests is how individuals learn to act cooperatively and acquire new preferences. What better place is there to do that than at the largest online social media platform?

Since joining Facebook in 2009, I’ve experienced Facebook’s byzantine construction first hand, from the infinite news feed and pirate speak, to the seemingly 50,000 times they’ve changed the layout of the home screen. The 2.8 billion other users and I have tolerated the seemingly superfluous changes just to keep up with people we only interact with through “likes” and the occasional comment. This habitual use by long-term users has fueled the growth of Facebook’s platform from a website intended to help Ivy League computer geeks meet women to a multi-purpose social media monopoly with a trillion-dollar valuation.

Such growth reflects the ethos driving Facebook. As one employee describes their orientation experience: “We believe in the religion of growth.”  Facebook’s framework provides a fascinating and terrifying example of what happens when unhindered growth is the goal.

Hard-Wired for Social Networking

A “social network” is how we describe a collection of individuals and their connections. As one of the most socially evolved animals on the planet, humans form networks without even thinking about it. Consider some of the networks you’re involved in—friends, acquaintances, co-workers, and family members—who you’re connected to through mutual interests, frequented locations, employers, and most basically your DNA. These networks are not only healthy, but essential for our survival and wellbeing.

Gif of lines being connected by dots to illustrate how social networks form.

Figure 1. Social networks: good at growing.

One would think, then, that a platform designed to foster human connection on a global scale would largely improve social wellbeing. Of course, for many this is arguably the case. Facebook allows users to connect to anyone with internet access through features like Messenger and groups. It has even helped reconnect long-lost family members and friends. Even CASSE has its own Facebook page to stay in touch with steady staters across the globe! The problem with Facebook, then, lies not in social networking itself, but in how the company manipulates networks for the sake of expansion.

The Growth Goal and Execution

Much can be learned about a community and its individuals by studying their connections and how those connections change over time. Facebook has been used as a tool to illustrate this through studies such as how individuals’ preferences in movies, books, and other media evolved over time. By studying the interests of individuals and the interests of their peers in a small university group on Facebook, researchers were able to accurately predict new connections and interests people would likely explore. The key insight is that the more information gathered about a person’s connections, the more accurately one can predict what they might like next. Therefore, adding more individuals to the network and introducing more ways for them to connect augments the information about those already there.

Facebook has mastered the process of capitalizing on this phenomenon. When its user count plateaued around 90 million in 2007, Facebook created a special growth team for the sole purpose of bringing as many people onto the site as possible. The growth team developed the “People You May Know” feature, whereby Facebook makes connection suggestions based on the data compiled on a user, nudging users to increase their connections. Users quickly discovered the eerie nature of the feature, as questionable suggestions appeared and caused many to wonder: What information is Facebook using to make these recommendations and how are they getting that information?

No one knows for sure all the sources Facebook uses to make these suggestions. We do know, however, that for every new person added to the network and every new connection made, Facebook’s software gleans increasingly more information about existing members. Its algorithms then use that information to target you with ads, content, and connection suggestions that you are most likely to engage with to keep you on the site. The more time and engagement you have, the more connections you tend to make. The whole process is a continuous feedback loop designed to continually “maximize the system.”

Facebook’s growth plan worked better than anybody ever imagined, and the algorithm used to learn about people and manipulate content is a genius invention of its top-tier development team. However, like many technologies, the purpose it serves changes with the intent of the user. The algorithm’s main function is to feed content to users based on their “friends” and previous interests, but in the wrong hands, this tool proves deadly.

Mark Zuckerberg Meets Rich Uncle Pennybags

In the company’s quest to grow, it has increasingly diversified the means of connection on its platform, exemplifying what many consider monopolistic behavior. A monopoly occurs when a single seller can set market prices because it faces little to no competition. Monopolies are disastrous for consumers because the lack of competition allows monopolists to restrict market output and artificially increase prices. This reduces consumer surplus and economic welfare, which is why monopolies have been illegal in the USA since the passage of the Sherman Anti-Trust Act.

Graffiti of the monopoly man, Rich Uncle Pennybags

Rich Uncle Pennybags, known to many as “the Monopoly man.” (Image: CC BY-NC-ND 2.0, Credit: Sean Davis)

If a service like Facebook is free, can it really have a monopoly? The answer is yes, and the consequences go far beyond price gouging.

Facebook’s monopolistic behavior first began with its billion-dollar acquisition of Instagram in 2012, when executives identified the rival platform as a threat. Instagram, at the time, only allowed image sharing with followers, who could then like and comment. Facebook also had these capabilities, making the two platforms natural competitors. By integrating Instagram with Facebook’s network, Facebook acquired the portion of Instagram’s userbase that wasn’t on Facebook and captured the competition’s advertising revenue. Instagram now brings in $20 billion annually in advertising for Facebook, about a third of Facebook’s revenue.

Facebook’s next competitor purchase was the international messaging platform WhatsApp in 2014 for $19 billion. WhatsApp provided a secure, highly encrypted means of communication from anywhere in the world with internet access, an indispensable service in today’s global ecosystem. Facebook had its own messaging service that, by 2013, was outcompeted by WhatsApp in Europe and elsewhere, making the acquisition a no-brainer. The merge offered Facebook hundreds of millions of new users along with a well-developed, multi-functional messaging infrastructure that could even be used to transfer money. WhatsApp solidified Facebook’s growth into a multiplatform conglomerate with an astounding amount of power—and responsibility.

At this point it’s fair to say that Facebook is a monopoly. They have no direct competitors in the sense that no other social media company provides as many services as they do. As a result, individuals who rely on Facebook services, such as messaging and news, are vulnerable if Facebook should fail. A prime example of this occurred on October 4th, when Facebook experienced a service outage that lasted almost 6 hours. With Facebook servers down for much of the day, all Facebook, Instagram, and WhatsApp users were without access to messaging, content, or news with no viable alternative. This is devastating for the billions of individuals who rely on these services worldwide for a myriad of communication needs.

However, the consequences of Facebook’s monopolistic growth go beyond power outages. The platform has grown so large that it is unable to properly moderate and filter misinformation, leading to the deaths of millions across the globe.

A Lesson from Uncle Ben

If Facebook’s monopolizing and ethically questionable information gathering don’t call to mind the mantra, “with great power comes great responsibility,” then you either haven’t seen Spider-Man or you might be an authoritarian. This nugget of wisdom from Peter Parker’s Uncle Ben applies to all entities that wield immeasurable power, from the U.S. government to the billionaires it has helped create, Zuckerberg included. With Facebook’s tremendous growth came tremendous power, and consequentially great responsibility.

But Facebook has historically adopted a laissez-faire approach to this responsibility, particularly when it comes to how it handles spreading disinformation on its platform. Take, for example, how Facebook facilitated cases of Russian interference in the 2016 presidential election and attacks on parliamentary elections throughout Europe. Though the company denies any role in the January 6th insurrection of the U.S. Capitol, its own internal reports reveal that a small, coordinated effort of super-sharing individuals caused many individuals to storm the U.S. Capitol, many with the intent to capture and kill elected representatives.

Former Facebook employees continue to expose the company’s poor handling of dangerous situations, particularly in developing countries. After removing thousands of inauthentic, propagandist accounts pushing the authoritarian Juan Orlando Hernandez of Honduras and devoting her spare time to combating misinformation accounts in various countries (including the UK and Australia), former data scientist Sophie Zhang was fired from Facebook for devoting too much time to policing civic engagement. The most recent whistleblower, Frances Haugen, claimed that Facebook phased out efforts to combat disinformation, with potentially deadly consequences.

In Myanmar, Buddhist citizens and the military engaged in a genocidal campaign of the Muslim Rohingya minority from 2016 to 2017 that claimed almost 750,000 lives. Throughout the campaign, fake news, hate speech, and other misinformation spread across Facebook, especially in Myanmar where 38 percent of citizens get their news through the site. Not only did it take two years for many of the accounts to be removed, Facebook also refused to share both user data and the measures it took to address the problem with international investigators. If one genocide wasn’t enough, Facebook seems to be repeating history with the situation in Ethiopia where murderous riots inspired by ethnic hate speech on Facebook have already claimed the lives of over 80 minority citizens.

Facebook is a case study in how the obsession with growth—whether of a nation or a social media monopoly—has dire implications for national security and international stability.

Channeling Taft and Roosevelt: Break Them Up

Mark Zuckerberg presenting Facebook's rapid growth on stage.

Mark Zuckerberg preaching the religion of growth. (Image: CC BY-NC 2.0, Credit: Niall Kennedy )

Katherine Losse, Mark Zuckerberg’s one-time speech writer, best summarizes Facebook’s growth mindset in her memoir when she says, “Scaling and growth are everything; individuals and their experiences are secondary to what is necessary to maximize the system.” The company’s religion of growth has been so successful that it has engulfed competitors and grown beyond its means to monitor and control the content spreading across its network (even if it wanted to). Though Facebook has successfully connected people around the globe and circulated some important information throughout the pandemic, the toll it has taken on democracy has exceeded its advantages. Its sheer size threatens not only the USA, but the world as well.

Anti-trust legislation was the solution to adverse conditions arising from trusts like Standard Oil and U.S. Steel. These companies drove competitors out of business by temporarily cutting prices below cost, which ultimately concentrated wealth into the hands of a few who wielded this wealth to influence American politics in their favor. Thankfully, presidents Theodore Roosevelt and William Taft brought the hammer of justice down on the heads of John D. Rockefeller and J.P. Morgan, successfully breaking them up. Now Biden’s justice department is poised to do the same to Facebook.

Without proper oversight or the ability for users to readily disengage, Facebook will continue to expand beyond its limits of control. If the past is any indication, there is bound to be more bloodshed. Let’s hope Uncle Sam is still big enough to keep the peace.

Taylor Lange, CASSE's Ecological EconomistTaylor Lange is CASSE’s Ecological Economist, and Ph.D. candidate in Ecology and Environmental Science at the University of Maine.

The post Facebook and Its Religion of Growth appeared first on Center for the Advancement of the Steady State Economy.

Labor Day Reflections: Growth Doesn’t Solve Inequality

Published by Anonymous (not verified) on Fri, 10/09/2021 - 11:25pm in
by Taylor Lange

Labor Day, like other holidays of remembrance, is an opportunity to reflect on the past and critically consider the future. Our memory ought to include the foot soldiers of the labor movement, from the 10,000 coal miners who fought in the Battle of Blair Mountain to the steel workers who duked it out with the Pinkertons at Homestead mill. We owe our rights as workers to the bitter struggles of many who preceded us.

Despite the gains of the labor movement, it seems we still have a long way to go. It is well-documented that while the productivity of the American worker has continued to rise, our compensation has risen slower. All that extra surplus has gone right into the bosses’ pockets; Mother Jones would be up in arms by now.

One result of the asymmetric rise in wages and productivity has been worsening income inequality. Some would argue that economic growth will fix the problem. After all, a rising tide lifts all boats, right? Brian Snyder didn’t think so, and neither do I based on the following findings.

Revisiting Kuznets’ Curve

Graph of Kuznets' Curve

Figure 1. The Kuznets curve is a graphical representation of Simon Kuznets’ theory on inequality and economic growth.

The earliest and most influential economist to write about economic growth and income inequality was Simon Kuznets. He compared income data from developing and developed countries from the 1920s through the early 1950s, and found that the poorest 10-20 percent of households in the developed countries were earning a growing share of GDP while the top 10-20 percent were earning less. In developing countries, the reverse occurred; as these countries grew in terms of GDP (and developed in terms of GDP per capita), inequality worsened.

This stark contrast between developed and developing countries led Kuznets to speculate on the relationships between growth, development, and income inequality. He theorized that as a country grew and developed initially, its workforce would switch from agriculture to industry and rural to urban. The cost of migration and learning new skills would cause the laboring class to lose wealth and income while the capital class benefited from the increased output. Afterward, as labor became more skilled, laborers’ share of income would increase. In other words, Kuznets thought that economic growth would worsen income inequality initially, but ultimately lessen it.[i] Graphically, this appears as an inverted “U”—hence its nickname, the “Kuznets curve.”

Kuznets Versus Modern Data

While Kuznets’ analyses were groundbreaking for the time, the times have changed. When we consider the same countries Kuznets did, we discover that his initial findings no longer reflect today’s trends.

Figure 2. Inequality vs. GDP per capita. Inequality is the ratio of income received by the top 10 percent of earners to income received by the bottom 50 percent. Per capita GDP data are from 1960-2018. (Given the growth of per capita GDP during that period, the X axis is also a proxy for time.)

Data from the last 60 years provide insights on how the economy (in per capita terms) and the income share of the wealthiest Americans have grown.[ii] Towards the lower end of GDP per capita, we see that growth accompanies decreased inequality. Those data points happen to come shortly after Kuznets’ famous findings. The trend does not last, though, as inequality starts to increase again around 10,000 dollars of per-capita GDP, and per-capita growth thereafter benefits the wealthy disproportionately.

Keen observers would note that inequality seems to be leveling off, suggesting the USA may be at another turning point like the one predicted by Kuznets. While this is plausible, several supposed turning points appear along the continuum of GDP per-capita growth, and are consistently followed by subsequent increases in inequality. How many bobs at the apple should the late Kuznets get? And, if we have a number of mini-Kuznets curves over time or at different levels of income, is that really a Kuznets curve at all?

While it’s possible that a few more years’ worth of data could see a true decrease in top earners’ shares, it’s likely that deliberate policy choices are mostly to blame for the expanding wealth of the rich.

Policy Arenas and Inequality

So, what are these policies? An extensive examination by the Economic Policy Institute (EPI) sheds some light on many of the major policies that have eroded American labor including:

  1. Trade deficits and outsourcing — Multinational companies and free trade agreements undercut the wages and job security of non-college educated workers in favor of protecting profits. Sending jobs overseas forced the USA to import more, resulting in a trade deficit that was disastrous for U.S. manufacturing.
  2. Erosion of unions and the right to organize — Anti-union sentiments have allowed for corporate attacks on workers’ rights, and a recent Supreme Court decision has been the latest in a series that have eroded workers’ ability to collectively bargain.
  3. Stagnation of the federal minimum wage — The last time the federal minimum wage went up was in 2009; we’re in the longest period without a raise since the minimum wage’s inception. Adjusting for inflation, the minimum of $7.25 is worth 16.5 percent less than it was at inception, which means you can buy even less with it.
  4. Lack of enforcement of wage theft laws — Wage theft occurs when workers are not paid for hours worked, or employers confiscate tips from their employees, among others. A study done by the EPI indicates that workers in ten U.S. states lose an average of 3,300 dollars per worker per year to wage theft.

All of these policies and oversights are symptomatic of a growth-driven mindset aimed at increasing consumption and output. These types of policies echo the adverse working conditions and standards that ignited the American labor movement and should be met with the determined opposition of Samuel Gompers himself!

A Just and Equitable Steady State

Addressing income inequality requires a societal desire for equality, followed by regulatory action of the government. We must be intentional and explicit with policies crafted for an equitable distribution of wealth as well as a sustainable size of economy. As Herman Daly argued, we need institutions that “limit the degree of inequality … since growth can no longer be appealed to as the answer to poverty.”[iii] For that matter, we can’t simplistically assume that degrowth or a steady state economy would ensure fairness either. Income fairness (not necessarily absolute equivalence of incomes or wealth) is a goal worth formulating policy for.

The violence and general unrest that characterized the labor movement is symptomatic of the link between social stability and income equality. Steady staters should consider and craft policy instruments to address income and wealth inequality. After all, how can a state be steady if it isn’t stable?


[i] Simon Kuznets, “Economic Growth and Income Inequality,” The American Economic Review 45, no. 1 (1955): 1–28.

[ii] World Inequality Lab, “World Inequality Database” (World Inequality Lab, 2021),

[iii] Herman E. Daly, “The Economics of the Steady State,” The American Economic Review 64, no. 2 (1974): 15–21.

Taylor Lange, CASSE's ecological economistTaylor Lange is an ecological economist with the Center for the Advancement of the Steady State Economy (CASSE).

The post Labor Day Reflections: Growth Doesn’t Solve Inequality appeared first on Center for the Advancement of the Steady State Economy.

Household debt and consumption revisited

Published by Anonymous (not verified) on Wed, 01/09/2021 - 6:00pm in

Philip Bunn and May Rostom

The academic literature finds that the build-up of household debt before the 2008 financial crisis is linked to weaker consumption afterwards. But there is wider debate over the mechanisms at play. One strand of literature emphasises debt overhang acting through the level of leverage. Others find it was over-optimism acting through leverage growth. In this post, we revisit our previous analysis on leverage and consumption in the UK using synthetic cohort analysis. The correlation between leverage measures and their link to other macroeconomic variables mean it’s challenging to tease out their effects. Yet we find that whilst both mechanisms played a role, there is evidence that debt overhang linked to a tighter credit constraints was the bigger driver.

In the UK, the ratio of household debt to income rose from about 85% in 1997 to almost 150% in 2007, with much of that increase accounted for by increases in mortgage debt (Chart 1). For most of this period, household consumption growth was close to its historical average – there was no sharp acceleration in spending – and inflation was low and stable. When the crisis hit, consumption fell sharply. How might the build-up in debt have affected households’ consumption response in the wake of the GFC?

Chart 1: Household debt to income ratio rose sharply prior to the financial crisis while consumption growth was close to average

Academics have put several hypotheses forward to explain this relationship. For this post, we examine two of them: pre-crisis overoptimism, and debt overhang. These two hypotheses are not necessarily mutually exclusive. In fact, both are likely relevant, but not all animals are equal, and some are more important than others.

The over-optimism hypothesis

One view argues that households adjusted their expectations downwards. In this view, prior to the crisis, some households were buoyed by looser credit conditions and rapid growth in house prices increased the amount of collateral homeowners could borrow against. Households who felt positive about the future, could have also been optimistic about their future income, and would have been comfortable to increase leverage quickly. The more optimistic households had to revise down their future income expectations and also cut back their spending by more than others during the GFC, and so this correlates with the change in leverage.

In one paper, Andersen et al (2016) find a strong correlation between the increase in pre-crisis leverage and Danish spending patterns during the recession, but less so for the level. Similarly, in an aggregate-level cross-country comparison, Broadbent (2019) shows that growth in debt between 2005 and 2007 was a better predictor of the economic downturn than the level. However, none of these studies specifically refer to the UK.

The debt overhang hypothesis

A second hypothesis relates to the size of outstanding debt. Households who were highly leveraged going into the crisis faced binding borrowing constraints once credit conditions tightened, limiting their ability to refinance or borrow more. For the UK, this was important: during the GFC many mortgagors were on two-year fixed rates that were refinanced often. This ‘debt overhang’ may have caused these households with higher levels of leverage to cut back spending more. Indeed, a number of studies point to the importance of the level of pre-crisis leverage in explaining the weakness of consumption growth (Dynan (2012) and Baker (2018)), with debtors having higher marginal propensities to consume (Mian et al (2013)).

Credit constraints may also play a role here. Prior to the crisis, mortgage products with loan to value (LTV) ratios greater than 90% were common in the UK, and in some cases offered loans greater than the value of the property – the most infamous example being Northern Rock’s ‘Together’ mortgage at 125% LTV. When the crisis hit, those high LTV products disappeared (Chart 2). This reduction in credit availability will also have been amplified by falls in house prices, which will have raised a household’s outstanding LTV ratio for a given level of debt. UK house prices fell by up to 13% between 2007 and 2009. Taking these two facts together, any household going into the crisis with an outstanding LTV above 75% would have struggled to refinance their mortgage or take on additional debt. LTV ratios are primarily associated with the level of debt. We estimate that around 15% of mortgagors were in this position. These were primarily young households: the average age was 35, and five out of six were younger than 45.

Chart 2: There were very few mortgages with LTVs above 90% during the financial crisis

Revisiting the debate: micro evidence for the UK

We revisit our previous analysis (Bunn and Rostom (2015)) on the comovement between leverage and consumption during the GFC, to consider the role of these different measures and associated hypotheses. For the UK, household-level panel data containing both debt and consumption around the GFC are not available, so we track groups of households, or cohorts, over time using the well-established methodology of Deaton (1985). Nevertheless, our results tell a plausible story.

One challenge with this exercise is that all measures of debt we examine are well correlated – this means it’s hard to definitively conclude which leverage measures are driving this effect. For example, those with high levels of debt to income often also saw strong growth in their leverage (Chart 3).

Chart 3: Measures of the growth and level of leverage are well correlated

Table A reports the results of our reduced-form regressions for the growth in household spending over the financial crisis on different debt measures as explanatory variables (full details in the technical appendix). We also control for other factors such as income growth, wealth and household composition.

Table A: Regressions for household spending during the financial crisis with different debt metrics

Looking at levels of leverage, column 1 shows that groups of households who went into the crisis with high loan to incomes (LTI) made larger cuts in spending during it. In column 2, the level of LTI is replaced with the change in LTI between 2003/04 and 2006/07. Again this is significant, showing that groups of households who experienced earlier rapid growth in debt also made larger reductions in spending. Putting these two debt measures in together in column 3, the coefficient on both falls, but only the change in LTI remains statistically significant. This result is the same if average LTI of a cohort is replaced by the percentage of high LTI households within each cohort and is consistent with the findings of Andersen et al (2016) for Denmark.

But this picture is incomplete because it abstracts from credit constraints. In column 4, we include a measure of the percentage of households in each cohort with a pre-crisis LTV above 75%. This measure, which is based on the level of leverage, aims to capture credit-constrained households. This metric also has a negative and statistically significant relationship with consumption growth during the financial crisis.

However, when we add the change in LTI in column 5, the coefficients on both the change in LTI and percentage of credit constrained households remain significant. Both coefficients are smaller than when they are included on their own. This relationship during the crisis is not seen in earlier periods when credit conditions were looser (see column 6 for one such example). 

As well as the statistical significance of the estimated coefficients, it is important to also consider their economic significance. Chart 4 shows that the magnitudes of spending cuts associated with debt during the GFC implied by all five equations are similar (the black diamonds), at just under 2% of aggregate private consumption. However, they differ on how to apportion it (the coloured bars). In equations 1, 2 and 4 only one channel is included by definition). In equation 5 – the only equation with two statistically significant debt measures – the percentage of credit constrained households accounts for 60% of the total effect, and the increase in debt in the run up to the crisis accounts for the remaining 40%.

Chart 4: Size of spending cuts associated with debt


What can these empirical results tell us about the co-movement between debt and consumption during the financial crisis in the UK? The strength of the correlation between the different measures of leverage make it challenging to conclude the mechanism at play and to definitively prove causation. Nevertheless, they do support an important role for debt overhang, driven by a tightening in credit conditions, and typically captured by the level of leverage. And the role of credit constraints here is supported by the significant relationship between the percentage of households with an LTV ratio above 75% going into the crisis, and cuts in consumption during it.

There can also be more than one explanation, and we do find some weaker support for overoptimism too, although it is curious there was little sign of a large pre-crisis consumption boom in the macro data. In the run up to the GFC, aggregate consumption growth was close to its historical average and nothing like the boom of the late 1980s, implying that any such pre-crisis effects were probably modest.

Technical appendix

The data used on the regressions in Table A are described in more detail in Bunn and Rostom (2015) but the key points are summarised below:

Sample definition: Equations are estimated using cohort data where cohorts are defined by single birth year of the household head and mortgagor/non-mortgagor status. Only households where the head is aged 21–69 are included. The specification reported in equation 1 differs from the equivalent regression reported in Bunn and Rostom (2015) as cohort cells with insufficient observations, after calculating lagged changes in debt, are dropped.

Data sources: Living Costs and Food Survey for all variables except LTV and measures of wealth. For equations 1 to 5, LTV and wealth are from the Wealth and Assets survey, and from the British Household Panel Survey for equation 6.

Additional controls: All equations also include controls for income growth, changes in household composition and growth in housing and financial wealth and a constant. Equation 6 does not include a control for financial wealth due to data availability. 

Variable definitions: ∆lnC is the log change in non-housing consumption, LTI is the ratio of outstanding mortgage LTI ratio, ∆LTI is the change in the ratio of outstanding mortgage LTI ratio, LTV share>75% is the percentage of households in each cohort with an outstanding LTV ratio of more than 75%. For equations 1 to 5 period t is 2009/10 and t-1 is 2006/07. ∆LTIt-1 represents the change between 2003/04 and 2006/07. For equation 6 period t is 2006/07 and t-1 is 2003/04. ∆LTIt-1 represents the change between 2000/01 and 2003/04.

Philip Bunn works in the Bank’s Structural Economics Division and May Rostom works in the Bank’s Monetary Policy Outlook Division.

If you want to get in touch, please email us at or leave a comment below.

Comments will only appear once approved by a moderator, and are only published where a full name is supplied. Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

CO2 Emissions: Accounting for Accountability

Published by Anonymous (not verified) on Fri, 06/08/2021 - 5:54am in
by Taylor Lange

In my very first graduate statistics course, the professor often cautioned us about data collection: “Garbage in, Garbage out.” What she said, in no uncertain terms, was that mistakes in the measurement or methodology would invalidate our statistical analyses. I’ve consistently reminded myself of this mantra. My colleagues, students, and I double check the sources and methodology behind any data we’re testing. If we aren’t entirely confident in the integrity of the data, we toss it into the garbage instead of using it to propagate further garbage.

At CASSE, we’ve noticed some changes in the accounting methods used to tally CO2 emissions. Uncannily, these changes seemed to take root around the same time CO2 emissions were shown to decline in the USA. We were immediately skeptical, because extremely powerful interests would benefit from a display of declining CO2.

After an investigation of the scientific literature, the answer turned out to be a bit more complex than we previously imagined.

U.S. Emissions by the Number

In April, the U.S. Environmental Protection Agency (EPA) published an inventory report on greenhouse gas emissions and sinks in the USA from 1990-2019, and it suggests some cause for cautious optimism. Emissions rose steadily from 1990-2007, then reversed course and have declined ever since. As of 2019, U.S. emissions are only 1.8% higher than they were in 1990, due primarily to decreased energy use stemming from innovation and conservation efforts.

Economic globalization has allowed embodied emissions to travel around the world. (Image: CC BY-SA 4.0, Credit: Caitlin Duffy)

The inventory is a synthesis of annual reports that the EPA prepares pursuant to the United Nations Framework Convention on Climate Change (UNFCCC). Ratifying nations of the UNFCCC agree to estimate greenhouse gases with global warming potential emitted within their boundaries so that a global assessment of greenhouse gas emissions can be made. The primary concern is CO­2, due to its major role as a greenhouse gas, and as a standard by which other gasses are measured for their potential to trap heat in the atmosphere.

This method of estimating global emissions makes the simple but important assumption that each country is responsible for the greenhouse gasses emitted within its boundaries. Experts[i] began questioning this assumption in the late 2000s because it omits a crucial step in the supply chain: global trade.

Focusing on CO2, let’s explore how discounting the consumption of goods—foreign or domestic—can bias our understanding of who is responsible for emissions. We can then examine how a more thorough understanding of emissions accounting can empower consumers to reduce their own emissions.

Production-based (Territorial) Accounting

The Intergovernmental Panel on Climate Change (IPCC) guidelines[ii] suggest countries measure CO2 emissions associated with five categories:

  1. Energy: This includes all fuel combustion related to transportation, electricity production, and residential uses (such as lawn mowers), the extraction of fuel (such as coal mines), etc.
  1. Industrial Processes and Product Use: This entails emissions from producing materials such as iron, steel, and cement, and other intermediate and final goods.
  1. Agriculture: These emissions are a result of soil management (such as the application of fertilizer), and livestock production.
  1. Waste: This includes CO2 released through trash decomposition, sewage water treatment, and composting.
  1. Land Use, Land Use Change, & Forestry: This mixed category includes emissions and sinks from forests, croplands, grasslands, etc. While deforestation and various land uses do emit CO­2, the CO2 stored in plant growth usually makes this category net negative.

Taking stock of emissions in this manner is referred to as “territorial” or “production-based” carbon accounting, though the term “production” can be a bit misleading. These are actually emissions that occur during the extraction of natural resources, the production of goods, and their transport to market within the country. Production-based accounting does, however, account for some global trade by estimating “bunker fuels,” which are emissions from shipping vessels that depart from a territory.


Figure 1. U.S. carbon emissions, measured in million mega tons of carbon. Data from the Global Carbon Project. These data do not include estimates of bunker fuels.


U.S. emissions from 1990-2018 were charted by the Global Carbon Project, a consortium of scientists who use the UNFCCC’s data to calculate and annually publish the global carbon budget in the journal Earth System Science Data[iv]. U.S. emissions steadily declined from 2007-2018 (Figure 1), but how would this story change if we were to consider the implications of global trade?

Consumption-based Accounting

An alternative to production-based accounting is consumption-based accounting, which was founded on two observations:

  1. Goods have an emission “cost.” Emissions are released throughout the supply chain, from extraction of natural resources to the energy used transporting products to retail outlets. This suggests emissions are “embodied” in final goods[v].
  1. Because consumer demand drives supplier behavior, consumers bear substantial responsibility for embodied emissions. Production-based estimates include the consumption of domestic goods, but not all goods produced in a country are consumed in that country. In consumption-based accounting, estimates are adjusted based on embodied carbon in exports and imports. In 2004, for example, 23 percent of global emissions were embodied in goods consumed in other countries[vi]. The USA, Japan, and many European countries were the largest importers of carbon, while China, Russia, and India were among the highest exporters.


Figure 2. The percent difference between production (red) and consumption-based (blue) estimates in the USA from 1990-2018.


When global trade is considered, the data depict a slightly different story. Until 1998, the USA was actually responsible for less CO2 because more embodied carbon was exported than imported (Figure 2). However, in 2005 and 2007, the USA was responsible for 7.4% and 7.8% more emissions, respectively. By accounting for imports and exports, we realize that U.S. consumers are significant contributors to annual emissions.

Accounting Methods Matter

Consumption-based accounting not only reveals a country’s real contribution to the problem, but also the country’s capacity to change[vii]. Imagine that a company in an affluent country decides to outsource a carbon-intensive part of its supply chain to a developing country. While this may benefit the developing country’s economy, this decision also reallocates the carbon emissions from a rich country (with the means to invest in cleaner production methods) to one with fewer resources. Consumption-based accounting helps remedy this ethical dilemma by holding accountable countries with greater regulatory power and higher per capita emission consumption.

Consumption-based estimates are only useful if we address how carbon-intensive our consumption actually is[viii]. Consumption-based accounting suggests that we—consumers—play a vital part in effecting change. Here are some things you can do:

  1. Reduce your consumption. Adopt a philosophy of minimalism and be conscious of embodied emissions, especially in food.
  1. Choose brands that have reduced the carbon cost in their supply line. Carbon Trust has eco-labeling certifications for identifying carbon-neutral products.
  1. Advocate for consumption-based accounting alongside production-based accounting. Different data serve different purposes, motivate multiple actors, and result in complementary reforms.
Moral of the Story

While consumption-based accounting may arguably lead to a fairer assessment of emissions, justice is a moving target. The age-old question arises about who really drives the economy: producers or consumers. Was Say’s law ever truly debunked? And don’t producers—augmented by their Madison Avenue advertisers—“produce” demand as well as goods?

The whole discussion evokes the chicken:egg causality puzzle. Which comes first? What is not in dispute is that we have far too much “chicken” and just as much “egg,” all proliferating in lockstep and emitting greenhouse gases along the way. With GDP growth as the central economic policy, production and consumption are even more relentless.

Perhaps the greatest hope for reducing greenhouse gas emissions, then, is not with accounting practices, but starting with the right policy goal. After all, it’s “garbage in, garbage out.”


[i] Steven J. Davis and Ken Caldeira, “Consumption-Based Accounting of CO2 Emissions,” Proceedings of the National Academy of Sciences 107, no. 12 (March 23, 2010): 5687–92,

[ii] IPCC, “2006 IPCC Guidelines for National Greenhouse Gas Inventories” (Japan: National Greenhouse Gas Inventories Programme, 2006)

[iii] Global Carbon Project, “Supplemental Data of Global Carbon Budget (Version 1) [Data Set],” Global Climate Project, 2020,

[iv] Pierre Friedlingstein et al., “Global Carbon Budget 2020,” Earth System Science Data 12, no. 4 (December 11, 2020): 3269–3340,

[v] G. P. Peters, S. J. Davis, and R. Andrew, “A Synthesis of Carbon in International Trade,” Biogeosciences 9, no. 8 (August 23, 2012): 3247–76,

[vi] Steven J. Davis and Ken Caldeira, “Consumption-Based Accounting of CO2 Emissions,” Proceedings of the National Academy of Sciences 107, no. 12 (March 23, 2010): 5687–92,

[vii] Karl Steininger et al., “Justice and Cost Effectiveness of Consumption-Based versus Production-Based Approaches in the Case of Unilateral Climate Policies,” Global Environmental Change 24 (January 1, 2014): 75–87,

[viii] G. P. Peters, S. J. Davis, and R. Andrew, “A Synthesis of Carbon in International Trade,” Biogeosciences 9, no. 8 (August 23, 2012): 3247–76,

Taylor Lange is Ecological Economist, Center for the Advancement of the Steady State Economy (CASSE).

The post CO2 Emissions: Accounting for Accountability appeared first on Center for the Advancement of the Steady State Economy.

Reduce, Reuse, Rethink: The Problem of Recycling

Published by Anonymous (not verified) on Fri, 30/07/2021 - 12:38am in

We’re taught from a young age to “reduce, reuse, recycle.” (Image: ©

by Ted Atwood

I was born in the year 2000. Thus, for my entire life, human-caused climate change has been an ever-present, intensifying threat. Throughout my early education, I learned that we all just needed to “do our part” to combat climate change. “Do your part” lessons always culminated in the sentiment that you too could save the cute polar bears by following the motto “reduce, reuse, recycle,” and these were words I took to heart.

As an introduction to sustainable practices, this formula isn’t entirely false, but as a greater climate crisis looms on the horizon, we need to rethink our blind faith in this three-step model, particularly recycling. The current practice of recycling (and the industry at large) reflects the flaws of contemporary climate strategy. Assessing the failures of the recycling process can guide us in the direction of a truly sustainable future.

Out of Country, Out of Mind

The first flaw in our recycling model is its reliance on foreign labor and processing. After we toss a bottle into a recycling bin, unless the bottle is pristine and easy to process (increasingly rare with single-stream recycling), it is loaded onto a container ship and sold by the ton to processing facilities on the other side of the world, namely China. With our environmental regulations and high labor costs, it would be literally impossible to handle all the plastic, glass, and paper we produce domestically. Thus, the only profitable alternative is China with its high capacity for materials management, low environmental standards, and cheap labor costs.

China’s ban on plastics forces us to deal with the problem at home. But how are we dealing with it? (Image: CC BY-SA 3.0, Credit: Paul Louis)

At its peak, China was the final destination for more than half the world’s recycled waste. This was until 2018, when China developed a new set of import standards, citing environmental concerns—which really meant that even the vast Chinese economy and workforce was inundated with foreign waste. This disruption in the recycling status quo left producers a choice to shut down recycling programs entirely, remove their burden by shipping to even more poorly regulated and dangerous facilities in Malaysia, or incinerate the waste domestically, often dangerously close to already vulnerable communities.

China’s inability to manage the volume of waste reveals the larger issue behind the recycling rhetoric. Rather than address our overwhelming consumption, we resort to pushing the problem abroad. However, the well-intentioned consumer only sees the aesthetically pleasing blue bins, and thinks no further of the plastic’s journey, unknowingly perpetuating the problem. Our collective mental image of recycling as a universal best practice is much easier to maintain when our waste is not only out of sight, but halfway around the world.

Excuses for Growth

Even if our recycling system functioned perfectly, we still wouldn’t be able to call it a panacea or even a significant aid in combating climate change. Why? Because of the linkage between increasing recycling and increasing plastic consumption. Evidently, practicing the “good habit” of recycling justifies our consumption of even more.

Businesses claim they’re “going green” but it’s all for profit. (Image: CC BY 2.0, Credit:

The momentum behind recycling feeds plastics, which of course has a vested interest in promoting consumption. The American Chemistry Council estimates that $186 billion is being invested in 318 new projects to increase plastic production. As we know, the steady state economy is the pinnacle of sustainability, so growth in the plastics and recycling industries is inherently unsustainable. Since the 1990s, the plastics industry has paid for ads that champion recycling as sustainability, driven by the understanding that recycling equals bigger profit. The recycling industry as it exists today, then, effectively becomes a smoke screen allowing for further destructive growth.

Recycling as an excuse for growth parallels other trends in the “business of sustainability.” While dozens of companies make pledges or initiatives in the name of the environment, these are too often facades or outright lies. After all, what incentive do businesses have to become truly sustainable, when all it takes is a little greenwashing to mislead consumers? Some of the most blatant examples of this include the “clean diesel” propaganda by Volkswagen as an alternative to hybrid or electric vehicles, when in reality software was installed to fool emissions tests, and the cars spewed nitrous oxide up to 40 times the legal limit.

Even beyond cases of clear deception, corporate sustainability goals are really a Band-Aid over a gaping wound. Most companies, like the Shell Oil Company, make non-binding promises to become net zero on carbon in several decades. However, even these programs rely on carbon offsets where companies pay to save forests that would otherwise be logged, and these programs are hard to verify. One program in Indonesia overestimated the effects on deforestation by more than 60 times! In effect, these offsets offer an opportunity to cook the books.

The UN warns that offsets are mere Band-Aids that should be phased out by 2030. Even if offsets delivered what they promised, there is a finite amount of remaining forest to protect, and they do not address the countless other forms of natural capital exploited for economic growth. Just like recycling, neutrality pledges are sustainability smokescreens.

Steady-State Takeaways

The perpetual growth of any industry is inherently opposed to true sustainability and environmental protection. The plastic industry is no exception, even if growth advocates justify their views with the “solution” of recycling. Plastics, made from oil and gas, rely on our petroleum supply and further drilling for production, which we all know causes a slew of environmental consequences. Less intuitively, the same applies for the booming business of recycling, a 53-billion dollar industry expected to grow at more than five percent each year. A growing recycling industry requires more labor (and thus food input), more shipping costs (both domestic and international), and other heavy machinery that necessitates natural capital.

While we should continue celebrating changing habits and moving to a cleaner future, we still need to be wary of complacency and devious marketing ploys. Chartered corporations exist for the sole purpose to make profit, so why should we trust them when they promise they’re committed to sustainability?

Any type of advocacy can feel emotionally exhausting, and the last thing you want to hear is that the few solutions you’ve tried implementing are not what you thought. This article is not a call to burn your recycling bins. The inspiration behind this critique is both the hope and confidence that we can do better at holding ourselves responsible for the failings of our current system.

Salvation will never be as simple as a blue bin next to the trash can, but we’ve known this from the beginning. The task of saving humanity and biodiversity from climate catastrophe will be one of the greatest global challenges ever faced, but real solutions are right under our noses. Remember that mantra, “reduce, reuse, recycle,” we’ve all come to know? Rather than put all our eggs in the recycling basket, let’s not forget the value of the other two components. While the most effective way to eliminate waste is not to consume to begin with, reducing and reusing are the next best methods. By reducing our consumption of plastics and choosing reusable goods, we put another brake on unsustainable growth. That’s what sustainability is really all about.

The post Reduce, Reuse, Rethink: The Problem of Recycling appeared first on Center for the Advancement of the Steady State Economy.

What Is behind the Global Jump in Personal Saving during the Pandemic?

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:36am in

Matthew Higgins and Thomas Klitgaard


Household saving has soared in the United States and other high-income countries during the COVID-19 pandemic, despite widespread declines in wages and other private income streams. This post highlights the role of fiscal policy in driving the saving boom, through stepped-up social benefits and other income support measures. Indeed, in the United States, Japan, and Canada, government assistance has pushed household income above its pre-pandemic trajectory. We argue that the larger scale of government assistance in these countries helps explain why saving in these countries has risen more strongly than in the euro area. Going forward, how freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries.

The pandemic sent consumer spending into retreat, helping drive up saving

Consumer spending plummeted in the United States and other high-income economies with the arrival of the COVID-19 pandemic. The drop was sharpest in the second quarter of 2020, reflecting the strict lockdowns then in place. Spending picked up over the second half of the year, but the recovery was only partial. Consumption was still well below pre-pandemic levels at year-end.

A simple accounting identity can help clarify how changes in spending feed into saving. Since income is either spent or saved, changes in income must be matched by changes in spending and saving.

Change in Income = Change in Consumption + Change in Saving

If income is stagnant, a decline in consumption will result in an equal increase in saving. If income is growing, the same decline in consumption will translate into a larger increase in saving.

The chart below shows how this relationship has played out during the pandemic for the largest high-income economies: the United States, the euro area, Japan, the United Kingdom, and Canada. The triangles represent the percent change in personal disposable income—income after taxes and net transfers—comparing the first three quarters of 2020 with the first three quarters of 2019. The bars show how these changes in disposable income map into changes in consumption and saving, consistent with the identity above.

What Is behind the Global Jump in Personal Saving during the Pandemic?

While consumer spending weakened in all these economies, the magnitude of declines varied widely. U.S. spending held up best, dropping by the equivalent of 3 percent of pre-pandemic personal income. Spending in the United Kingdom fell the most, dropping by nearly 12 percent. Spending elsewhere was down 6 to 7 percent.

Household saving, in contrast, was up across the board, with increases ranging from 7 percent of pre-pandemic income in the euro area to 16½ percent in Canada. The counterparts to this increase varied widely. In the euro area and the United Kingdom, income stagnated, and higher saving came entirely from declines in consumption. In the United States and Canada, income grew strongly, and saving rose by more than twice the decline in consumption. In Japan, the increase in saving came about equally from lower consumption and new income.

Data through the end of 2020—available only for the United States and Canada—tell a similar story. Saving grew strongly, with the largest contribution from income, and a smaller but still sizeable contribution from lower consumption.

Notably, personal disposable income in the United States, Japan, and Canada grew by more than twice the average pace over the previous several years. The COVID-19 pandemic, of course, brought steep recessions to all high-income economies. This raises a natural question: Why did income growth hold up so well in the United States, Japan, and Canada?

Government support bolstered household incomes

Wages and other labor compensation account for the largest part of household income—more than 60 percent of income before taxes for the economies discussed here. The rest of income comes largely from private sources such as proprietors’ earnings, rents, and investment returns. (The line between labor compensation and proprietors’ income varies across countries, depending on differences in accounting practices and in how businesses are organized.) Net social benefits represent a final key category. This includes government-provided retirement benefits, unemployment insurance, income assistance, and similar programs, net of the taxes going to fund them. For some countries, net social benefits are typically a negative item for aggregate household income, with benefit-related taxes exceeding benefit payouts. What matters for our purposes, though, is how income streams changed over the course of the pandemic to yield the total change in household income.

The chart below provides a breakdown of disposable income growth, comparing the first three quarters of 2020 with the same period a year earlier. (As with our earlier chart, data through the end of 2020 are available only for the United States and Canada, and tell a similar story.) Again, the bars show contributions to this income growth. The gold bar labeled Earnings combines labor compensation, proprietors’ earnings, rents, and investment returns. The blue bar shows the net contribution from social benefits. The small green bar labeled Net other largely consists of changes in income taxes and in private transfers such as workers’ remittances.

What Is behind the Global Jump in Personal Saving during the Pandemic?

Nominal earnings growth was negligible in the United States and negative for all other economies—hardly a surprising development given steep recessions and the resulting sharp rise in unemployment and falloff in proprietors’ income. The positive outturn in the United States seems surprising, and can be traced at least in part to a less severe downturn: Real GDP for the Q1-Q3 period was down about 4 percent in the United States, compared to a decline of more than 6 percent elsewhere.

Higher net benefits made a meaningful contribution to income growth in all economies. But the magnitude of the contribution varied widely, ranging from just under 2 percentage points in the United Kingdom to more than 8 percentage points in the United States and roughly 10 percentage points in Canada. Absent the increase in benefits, disposable income growth would have been barely positive in the United States and Canada and negative elsewhere.

What would saving have been if there had not been these higher net benefits? It is impossible to say for sure. As an accounting matter, households could have maintained the same level of saving by making even sharper cutbacks in consumption spending. But consumption declines were already large and painful. More likely, the buildups in saving would have been substantially scaled back. Moreover, an attempt to maintain saving would be at least partly self-defeating. Deeper consumption cutbacks would have translated into steeper recessions, reducing incomes across the economy—and forcing further cutbacks in consumption or saving. The perverse feedback mechanism, whereby a general increase in saving makes everyone worse off, is known as the Paradox of Thrift.

Government support went beyond social benefits

Government pandemic assistance has gone beyond higher direct transfer payments. The United Kingdom, Japan, and some euro area countries have channeled wage subsidy payments to businesses rather than workers, which means these funds show up in household incomes as wages rather than social benefits. This arrangement helps explain why earnings declines have been small given the depth of recessions. Similarly, in the United States, Paycheck Protection Program funding shows up as proprietors’ income or indirectly as wages, not as social benefits.

A look at the government accounts serves as a check on the scale of support for household incomes. Countries’ integrated macroeconomic accounts show government outlays on subsidies to the business sector. These outlays have risen substantially—by roughly half as much as the increase in social benefit payouts in the United States, the euro area, and Canada, and by four times the increase in benefit payouts in the United Kingdom. No data are yet available for Japan, but indirect evidence indicates that the bulk of pandemic assistance there is captured in the household statistics.

Unfortunately, the data do not allow us to specify what fraction of these funds were eventually paid out to households. But the upshot is clear enough. Government support for household incomes and saving was larger than suggested by the increase in social benefits—dramatically so in the United Kingdom. The euro area continues to stand out for support that is large relative to history, but small relative to what has been enacted elsewhere.

Will households spend down “excess” saving?

How freely households spend out of their newly accumulated savings will be a key factor determining the strength of economic recoveries. Consumer spending would soar if households run down these funds aggressively when economies reopen. The potential upside is underscored by the fact that much of the buildup in savings is being held in easily spendable form. As the chart below shows, household deposit holdings for the five economies discussed here have risen by an amount equivalent to between 6.5 and 13.0 percent of annual disposable income.

What Is behind the Global Jump in Personal Saving during the Pandemic?

A recent Liberty Street Economics post, however, provides reasons for thinking that spending out of recent savings will be relatively modest based on how spending typically responds to an increase in the nation’s wealth. As noted in that post, goods consumption in the United States is already above its pre-pandemic trend. The same is true in other advanced economies. In addition, most consumer spending on services goes to essentials such as housing, utilities, education, and healthcare. There is only so much pop that pent-up demand for services such as travel, restaurant meals, and entertainment can deliver.

This isn’t to discount the upside potential for growth this year and next, particularly for the United States. Data in 2020 already place the scale of U.S. government support for households toward the upper end of the advanced economy range. The additional U.S. fiscal package passed in December boosted household incomes and savings starting in January, and the much larger package passed in March will add even more.

Matthew HigginsMatthew Higgins is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Thomas KlitgaardThomas Klitgaard is a vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Matthew Higgins and Thomas Klitgaard, “What Is behind the Global Jump in Personal Saving during the Pandemic?,” Federal Reserve Bank of New York Liberty Street Economics, April 14, 2021,


The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Why is Northern Europe so Indebted? The Impact of Welfare on Household Debt

Published by Anonymous (not verified) on Sat, 29/05/2021 - 8:38am in

by Martino Comelli* You might think the U.S. would be world champion of household debt, yet the highest private indebtment has always been in the Nordic countries. Debt, however, takes different forms. In Scandinavia, inclusive welfare systems make debt into an investment. Elsewhere, gerontocratic welfare and consumer credit can become a burden. Debt and welfare: […]