Notes on how to deal with the excess saving desire while limiting private leverage

Since 1980s, the balance between capital and labor moved in favor of capital. Profits have constantly gained income share from wages. It was overwhelmingly the top 1% of the population, the super rich, who have increased their share in income distribution all over the world. The top 1% distinguish from the next 9% in terms of their disposal of additional income.

The super rich desire to save most of the additional income share gained from the rest while the rest desire to sustain their previous level of consumption despite the income share loss to the super rich. Debt production enabled the simultaneous realization of both desires. The super rich increased their savings by purchasing the debt produced by the rest. The rest sustained their spending via increasing their debt. However, this solution was not sustainable as borrowers' debt grew faster than their income and wealth. It was the rising inequality that would raise households' leverage.

In 2008, the debt production mechanism broke when subprime borrowers defaulted on their mortgages. Following the crisis, authorities constrained household debt almost all over the world. Ironically, the same authorities continued to promote more private debt through interest cuts in economic slowdowns.

Since the global financial crisis, developed countries have increasingly wasted their production capacity due to the underconsumption problem. While economies perform below their potential, firms are reluctant to make new investments. Underconsumption, hence, becomes the main barrier before the economic growth.

Growth depends on policy makers' ability to increase both supply and demand in tandem. It is the imbalance between demand and supply hindering economic growth. For the developed world, it is underconsumption that discourages investment and, thus, pulls growth down. Developed nations can treat the underconsumption illness by restoring income equality. Hypothetically, the excess saving desire would disappear at a degree of equality.