Saving and Investment in the Twenty-First Century: The Great Divergence

Abstract

The economy of the 21st century in the OECD countries and in China, is characterized by a new phenomenon: the structural surplus of private savings in relation to private investment. This is true even in a situation of prosperity and very low interest rates. On the one hand, this excess saving is due to people's increasing inclination to save in light of rising life expectancy, driven by the desire to have sufficient assets in old age. On the other hand, the demand for capital is not increasing to the same extent, so that investment is not keeping pace with the rising desire to save. The resulting gap between the private desire for wealth and private investment can only be closed by increasing public debt.