Chandrasekhar & Ghosh on the missing global recovery

"In mid-November the OECD Secretariat issued the second of its annual assessments of the Economic Outlook for the world economy. The previous assessment was in May. In the short span of time between these two reports, the outlook has indeed changed. The optimism that desperately-searched-for-and-found “green shoots” of recovery generated has waned. To quote the OECD’s report: 'The global recovery remains modest and uneven ... Outcomes this year and near-term prospects appear a little weaker than had been expected in May, at the time of the previous Economic Outlook, with global GDP growth revised down by just under 1⁄2 percentage point both this year and in 2014 to 2.7% and 3.6% respectively.'"

Read the rest here.

Desperately seeking the natural rate of interest

The Economist Free Exchange (FE) blog gets into the debate of where is the elusive natural rate of interest. I've already discussed Krugman's views (see here and here) that the natural rate of interest is negative, and that's why we need fiscal policy, something that he refers to as the Liquidity Trap. FE suggests that William White, formerly from the Bank of International Settlements (BIS) and now from the Organization for Economic Cooperation and Development (OECD), believes that the natural rate is higher than the monetary rate.

According to FE White believes that: "the Wicksellian natural rate must be high and monetary policy too loose because low rates have encouraged all sorts of yield-chasing behavior." If one reads White's paper, we find that he says more precisely the following:

"Moreover, given this particular way of thinking and noting that the financial rate is now constrained by the ZLB [zero lower bound interest rate], this gap can only be redressed by raising the natural rate to encourage investment."

In other words, he believes that central banks, like the Fed, can move the natural rate, by affecting savings behavior presumably associated with inflationary expectations. This would lead to a monetary rate that is lower than the natural rate and increased investment. This is actually the same story that Krugman has favored, which I suggested is an inflationary expectations confidence fairy.

Interestingly enough, still according to FE, DeLong, who seems to be on the same page with Krugman, has responded to White, if FE's description is correct, suggesting that there is little that the Fed can do about the natural rate, and is stuck with a very low monetary rate for a while.

Mind you, the search for the holy grail of the natural rate is futile anyway (yep capital debates; it's been a while). And no act of the Fed will lead to more inflationary expectations and higher spending. And because of the Tea Party, and also fiscal hawks in the Democratic Party, there is no hope for fiscal stimulus. This FE post shows the incredible confusion of the mainstream.

PS: In this post FE also tells us that the natural rate of unemployment is 5.5%. Oh well.

United States: A No Vacation Nation

A new Report by CEPR researchers Rebecca Ray, Milla Sanes, and John Schmitt has come out. As noted before by Juli Schor in the classic The Overworked American, Americans are working harder and not making more money.

From the introduction:

This report reviews the most recently available data from a range of national and international sources on statutory requirements for paid vacations and paid holidays in 21 rich countries (16 European countries, Australia, Canada, Japan, New Zealand, and the United States). In addition to our finding that the United States is the only country in the group that does not require employers to provide paid vacation time, we also note that several foreign countries offer additional time off for younger and older workers, shift workers, and those engaged in community service including jury duty. Five countries even mandate that employers pay vacationing workers a small premium above their standard pay in order to help with vacation-related expenses. Most other rich countries have also established legal rights to paid holidays over and above paid vacation days. We distinguish throughout the report between paid vacation ― or paid annual leave, terms we use interchangeably ― and paid holidays, which are organized around particular fixed dates in the calendar. Our analysis does not cover paid leave for other reasons such as sick leave, parental leave, or leave to care for sick relatives.

Read the full report here.