Public investments in infrastructure do the most good at times like the present
THOSE trying to fly to or from Chicago in the past week learned first-hand the shortcomings of America’s public infrastructure. A suicidal employee set fire to a nearby air-traffic-control centre, resulting in the cancellation of thousands of flights, the third such interruption this year. The chaos is aggravated by a system dating from the 1950s that relies on radar. Unpredictable funding has delayed its planned replacement with a system that uses satellites.
Public infrastructure is one of the few forms of government spending that both liberals and conservatives support. Ports, power lines and schools are essential to the smooth running of the economy. But as America’s outdated air-traffic-control system shows, public investment is at the mercy of the fiscal weather. Cash-strapped governments are loth to pile on debt or raise taxes even for something as popular as a new road. After a burst of stimulus spending in the immediate wake of the recession, public investment has fallen back in the rich world (see charts).
This is profoundly short-sighted. That is the message of a new study by the International Monetary Fund, released as part of its half-yearly “World Economic Outlook”. It found that in rich countries at least, infrastructure spending can significantly boost growth through higher demand in the short run and through higher supply in the long run. This comes with caveats: the results depend on how the investment is financed, how efficiently it is carried out and what the prevailing economic conditions are. As it happens, the present conditions are perfect.
Sep 8th 2014, 16:22 by G.I. | WASHINGTON, D.C
Europe does not yet have its equivalent of Japan’s Abenomics, but Mario Draghi, president of the European Central Bank, pretty much advocated it in his press conference last week. Europe, he said, needs fiscal, monetary and structural policy working together, the three arrows of Abenomics. He acknowledged the ECB’s duty of getting inflation, now 0.3%, back up to its target of near 2%. But the ECB, he said, can’t rescue Europe alone: it needs help from fiscal and structural reforms.
Of course, he’s right that monetary policy can’t initiate fiscal consolidation or liberalize product and labour markets, and that both those things are essential to Europe’s long term health. But the ECB can help determine whether either of those things succeeds. For Europe’s fiscal and regulatory policy makers to do their jobs, it will help immensely if the ECB does its own.
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Courts and regulators turn the screws on firms that use irregular workers
September 4, 2014
FEDEX, Walmart and McDonald’s are among America’s largest employers. Yet many of the people who drive FedEx’s delivery trucks, staff Walmart’s warehouses and serve McDonald’s hamburgers are not their employees. Instead, they work for subcontractors, franchisees or themselves.
Flexible work arrangements have long been a hallmark of America’s ever-shifting economy. Lately, though, they have drawn more criticism. Earlier this year David Weil of Boston University published “The Fissured Workplace”, which argues that many employers have met competitive pressures by splitting off functions to subcontractors, vendors and franchisees, where workers’ wages and benefits stagnate. On September 3rd the OECD, a club of rich countries, fretted that a divide is opening between secure, permanent jobs and insecure, ill-paid temporary ones. Read the rest of this entry »
Jul 5th 2014 | From the print edition
FOR most of its 80 years, America’s Export-Import Bank has laboured in obscurity, providing loans, loan guarantees and credit insurance to foreign buyers of American products from jumbo jets to quiche. All of a sudden, it is in the spotlight: Tea Party conservatives have declared it to be the embodiment of corporate welfare. Republicans are threatening to block reauthorisation of the bank when its mandate expires on September 30th.
The fight over ExIm has drawn rare attention to one of the most pervasive and enduring instruments of mercantilism in the world trading system. Export-credit agencies got their start early last century. Britain’s, established in 1919, was part of an effort to improve its balance of payments and thus return to the gold standard. America’s ExIm Bank was originally conceived as an instrument of foreign policy, to provide leverage over the Soviet Union and support for Cuba.
The global financial crisis gave such banks a new lease of life. When banks pulled back from trade finance after Lehman Brothers collapsed in 2008, governments prodded their export agencies to fill the gap to prevent a bigger fall in trade volumes. Official export credit extended by the G7 alone soared from $35 billion in 2007 to $64 billion in 2009, and has remained around those levels since (see chart below).
Subsidised loans for exports have long been recognised as a form of mercantilism, which is why rich countries struck a gentlemen’s agreement in 1978 to curb them. Signatories to the “OECD arrangement” agree to maximum loan maturities, commercially-based interest rates and minimum risk premiums for insurance. When one signatory strikes a financing deal, it notifies the others, giving them the opportunity to match the terms. Read the rest of this entry »
America’s famously flexible labour market is becoming less so
Aug 30th 2014 | From the print edition
The European Central Bank should learn from the success of unconventional policies in America and Britain
In America and Britain, output and employment have surpassed their pre-crisis peaks and are growing solidly. But the picture in the rich world’s other two big economies is darker. In the second quarter Japanese output shrank sharply, largely because consumers had accelerated purchases in the first quarter in order to avoid a consumption-tax rise. The euro zone’s woes are harder to dismiss: second-quarter output was flat, and it remains no higher than it was in 2011. Read the rest of this entry »
Aug 23rd 2014, 4:14 by G.I. | JACKSON HOLE, WY.
The contradictory signals generated by American labour market data in the last year have provided grist for both hawks and doves at the Federal Reserve. For hawks, the rapid decline in the unemployment rate shows slack in the economy is disappearing so the Fed should tighten soon. For doves, the low rate of wage growth suggests there’s plenty of slack and tightening should wait.
Since becoming chair, Janet Yellen has usually been in the second camp, on balance interpreting the data as suggesting there wasn’t any urgency about raising rates. Her speech to the Kansas City Fed’s Economic Symposium on Friday in Jackson Hole, Wyoming struck a different tone. True, it covered both sides of the debate without coming down on either; Ian Shepherdson counted “1 coulds, 20 buts, 11 woulds, 7 mights, and a magnificent 56 ifs.” But she raised enough questions about the dovish case to suggest her own convictions are weakening. She was not telegraphing the case for raising rates soon. But it should be a wake-up call for investors who assume she would spin all the labour data that comes her way in a dovish direction. Read the rest of this entry »