The Street To Nowhere Near Pier

Mon 22 December 2014

My colleague reckons that the American economy is "converging rapidly on full employment". I think the Fed shares his view. Ironically, this is actually an exceptionally negative statement about the strength of the American labour market. Despite recent rapid job growth, there has been no recovery at all in the rate of participation in the labour force and only a very slight recovery in the  employment-population ratio . To conclude that America is closing in on full employment is to accept as permanent most of the damage done to labour markets by the Great Recession.

The best of all worlds

OVER the past few weeks, debates over British fiscal policy have been conducted under the shadow of George Orwell's "The Road to Wigan Pier", a powerful description of the poverty he found in the north of England in the 1930s. On December 3rd, George Osborne, the chancellor of the exchequer, in his Autumn Statement, announced plans to turn Britain's deficit, which stood at £108 billion ($169 billion) last year, into a surplus of £23 billion by 2020. Because the government does not want to raise taxes to fund these plans, public spending is forecast to fall from 41% of GDP today to just 35% by the end of the decade. That has prompted accusations that the government wants the country to go back to the late-1930s—and the Britain Orwell describes in his cri de coeur against poverty. The Office of Budget Responsibility, Britain's fiscal watchdog, stated that Mr Osborne's plans would force public spending down "below the previous post-war lows reached in 1957-58 and 1999-00 to what would probably be its lowest level in 80 years". "You're back to... Continue reading

The dark clouds around the silver lining

To slow the rouble's fall, the central bank has been raising interest rates: yesterday it did it for the fifth time (the rate now stands at 10.5%). High interest rates are dragging on economic growth: Russia is on the verge of recession. The central bank has also been buying roubles with its foreign-exchange reserves. They have fallen sharply this year (nearly 20%) but still seem gargantuan. According to the central-bank website, in November Russia had $419 billion-worth of reserves.

Two lost decades?

Economists usually make do with GDP (which anyway gauges income rather than assets). But a report published by the United Nations offers a broader indicator: “inclusive wealth”.

What's really there?

As part of its policies to counter low growth and inflation in the euro zone, it would make available to banks funds lasting until 2018 at dirtcheap fixed rates. By the time of the first funding operation, in September, that rate was a mere 0.15% a year. In all, banks could borrow as much as €400 billion in the first two of the operations.

Thanks but no thanks

RARELY have questions of household living standards and the shape of the public finances been so interwoven. The autumn statement—or, more specifically, the Office for Budget Responsibility’s economic and fiscal outlook—identified a £25 billion shortfall in tax revenues by 2018-19 relative to the projections in place at the time of the budget in March. This is a direct consequence of the disappointingly weak performance of pay in recent months and the expectation of sluggish recovery to come. The pay squeeze that has gripped British workers for an unprecedented six years is increasingly recognised as a key factor in the persistence of the battle with the deficit. The OBR’s outlook points to a gradual transition over the coming years, from today’s employment-rich but revenue-poor...

How rich we really are

A central bank in no mood to get in the way. That is the happy combination America now enjoys, and it explains the stock market's euphoric reaction to today's meeting of the Federal Reserve. In the statement releaed after its meeting, the Fed hailed "solid job gains" and diminishing slack in the labour market.

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