Expert views differ on the future of global economic growth

Inflation pressure will be likely to remain persistently weak and below or closer to the 2 per cent target rate in the US throughout the year 2018. 
 Hence, the federal funds rate is widely expected to hike up slowly for only three more rounds or less next year, in addition to one more last rise expected in December of 2017. 
Still, many economists tend to disagree on the real cause of the current disappointing low inflation pressure and low real interest rates seen in most major economies. 
The first group views that the fundamental forces behind an existence of low inflation rate and low real interest rates during the period of rising economic growth nowadays are the structural change of demography in many developed nations and the weaker global aggregate demand trend. This first view is also acknowledged that the massive amount of debt after the great financial crisis has continued to increase market vulnerability to future shocks and could also deter new investments. However, this group of people remains optimistic about the continuation of global economic growth for the next five years, at least. 
The second group, on the other hand, views that the lower real interest rates and low inflation rate are the result of weaker global growth expectation. 
Weaker global growth expectation could be directly related to the great financial crisis in 2008 since sluggish growth tended to persist for many years following a great financial crisis. 
Weaker global growth expectation can cut desired investment for any given interest rate. 
The historical evidence of the Great Depression in 1930 indicated that only a large increase in aggregate demand during and after the Second Word War could finally put an end to that great depression. 
Fortunately, both views still have, at least, one more thing in common. 
They both imply the so-called “dynamic inefficiency” problem. Dynamic inefficiency refers to a market equilibrium that has excessive saving and capital accumulation. It also implies some appropriate government intervention to overcome such problems. 
In theory, government can use fiscal policies to transform those excessive savings into more productive long-term investments, such as investment in human capital that will raise social benefits. 
In practical terms, government can increase government’s tax expenditure on children and their family, such as Child Tax Credit which will flow to family in the lowest income group, and Dependent Exemption and Child Care Credit which will benefit most the middle-income class. More public investments for the improvement of school qualities for all and those research programs in universities that tend to generate high social rate of returns. 
These types of government’s tax expenditure investment in child and human capital can both reduce inequality gap and promote long-term sustainable economic growth. 
One last point, it might come to the time when the Thailand 4.0 Project has to invest more in some specific child and human capital programs which aim to both reduce inequality gap and help promoting more sustainable economic growth as well. 
      
Professor ARAYAH PREECHAMETTA is a lecturer at Faculty of Economics, Thammasat University.