Economic Melancholy

The Organization for Economic Cooperation and Development (OECD) just revised worldwide growth projections for 2016 and 2017 downwards to 3% and 3.3%. Global growth is called “elusive” and the OECD advocates for prompt policy intervention. Not from central banks, but from governments. According to the Interim Economic Outlook, current fiscal policies are contractionary in all mayor OECD countries and the economic think-tank recommends to undertake government-led large-scale investment plans to relaunch demand and, surprise!, to reduce the debt burden. Apparently the investment multiplier is so large that the increase in the level of public debt would be eclipsed by GDP growth, that reduces the famous debt to GDP ratio. The OECD criticises the Juncker’s investment plan as to have an insufficient scale and to be implemented too slowly.

Even if their predictions on benefits from higher public investment seems to me an upper bound on hopes, the OECD indicates the right direction. I am not convinced by the anecdotal evidence of Robert Gordon on the case for a technological crisis, which would make such investment plans ineffective. I am more on the side of those that see a chronic laggard demand, not able to catch up with faster technological progress. Don’t be fooled by TFP and other wannabe productivity growth measures: they track both demand and supply factors, even if many commentators pass off them as evidence for dismal technological progress. Gordon’s book is coming out soon, I will talk about this influential thesis again.