_12_ _characterize them as imbalances. If_<sup>_you save a lot now because of_</sup> _lmpendlng retlrement, that is,_<sup>_intertemporally,_</sup> _an optimal decision; It Is not an imbalance In any sense._<sup>_Once you have saved a lot, the_</sup> _question is what to do with your_<sup>_savings. Now it would be wonderful_</sup> _If you found Investment opportunities at home, but if it turns out that there are better investment_<sup>_opportunities In Korea or Taiwan or_</sup> _somewhere else 'n the world, It_<sup>_is In no sense an imbalance to puc_</sup> _your savings into those countries and_<sup>_to run large current account_</sup> _surpluses. I would characterize that positively as an equilibrating economic phenomenon._ _So I would say that these are at least_<sup>_parts of the large_</sup> _surpluses we see in the surplus countries that_<sup>_aren't in any sense_</sup> _imbalances. They are an equilibrating process._<sup>_Of course, disen-_</sup> _tangling that from the effects of the Reagan fiscal_<sup>_shock is awfully_</sup> _difficult. But what I would plead here is that we do try_<sup>_and disen-_</sup> _tangle them, and we distinguish real imbalances from optimal intertemporal decisions._ _I was surprised at the characterization of growth as being driven chiefly by Investment. I thought that long-term_<sup>_growth was_</sup> _explained, to a significant extent, by total factor productivity (which is a name for what we cannot explain_<sup>_by the contributions of_</sup> _capital and labor). And when you look at that in different periods, I would have thought we could attribute it to technology,_<sup>_to entre-_</sup> _preneurship or the growth of entrepreneurship, and_<sup>_to what the_</sup> _psychologists call hygiene factors, that is, the cleaning_<sup>_out of_</sup> _restrictive regulatory practices._ _If it is correct that total factor productivity_<sup>_explains_</sup> _a large part of growth, I think you have attributed too much_<sup>_impor-_</sup> _tance to investment and demand forces. But, more_<sup>_generally, if one_</sup> _thinks that growth will proceed over_<sup>_the longer-run by means of_</sup> _government-generated demand shocks, one has co ask: Where do you start from and where do you end up?_ _Policy If you start from very low budget deficits and very_<sup>_low_</sup> _Reforms... government-debt-to-GNP ratios, you can rely on fiscal stimulus for quite a while. But if you start from anywhere_<sup>_like where we are now,_</sup> _how do you do it? We have situations in_<sup>_countries that we are mark-_</sup> _ing as possible engines for growth,_<sup>_like Germany or like much of_</sup> _Europe, where government debt/GNP_<sup>_ratios are awfully high and are_</sup> _projected to increase further. We have a situation where monetary_<sup>_stimulus is not_</sup> _effective because yield curves are_<sup>_already very steep: while govern-_</sup> _ments can push down short-term interest_<sup>_rates, the long rates don't_</sup> _go down because of skepticism in the_<sup>_markets of the long-run impact_</sup> _of expansionary monetary policies. Moreover, it_<sup>_is the longer-term_</sup> _rates that influence the interest-sensitive componencs of demand._ WPIPROC/SF:Jsq