The Unassuming Economist

From a new paper by Francesco Saraceno:

“The New Consensus that has dominated macroeconomics since the 1980s was based on a fundamentally neoclassical structure: efficient markets that on their own converged on a natural equilibrium with a very limited role for macroeconomic (mostly monetary) policy to smooth fluctuations. The crisis shattered this consensus and saw the return of monetary and fiscal activism, at least in academic debate. The profession is reconsidering the pillars of the Consensus, from the size of the multipliers to the implementation of reform, including the links between business cycles and trends. It is still too soon to know what macroeconomics will look like tomorrow, but hopefully it will be more eclectic and open. ”

A new IMF working paper “uses a DSGE model to simulate the impact of technological change on labor markets and income distribution. It finds that technological advances offers prospects for stronger productivity and growth, but brings risks of increased income polarization. This calls for inclusive policies tailored to country-specific circumstances and preferences, such as investment in human capital to facilitate retooling of low-skilled workers so that they can partake in the gains of technological change, and redistributive policies (such as differentiated income tax cuts) to help reallocate gains. Policies are also needed to facilitate the process of adjustment.”

“Policies can change the impact of technological change. Depending on societies’ preferences for growth versus income equality, governments may want to distribute the gains from technology more evenly. Certain policies, if well designed, could mitigate the trade-off between both objectives. For example, illustrative model simulations show that higher education spending would not only allow low-skilled workers to participate in the gains of technological change, it would also increase output; this holds even when taking into account that higher spending will require higher rates of taxation. More generally, while the use of the tax/benefit system to redistribute the gains from technological advances tends to come with some loss in efficiency, the resulting loss in output tends to be relatively small.”

From a new VOX post:

“The most widely available measure of underemployment is the share of involuntary part-time workers in total employment. This column argues that this does not fully capture the extent of worker dissatisfaction with currently contracted hours. An underemployment index measuring how many extra or fewer hours individuals would like to work suggests that the US and the UK are a long way from full employment, and that policymakers should not be focused on the unemployment rate in the years after a recession, but rather on the underemployment rate. ”

“Figure 2 shows our estimates for the UK of the number of desired hours of those who want more hours (the underemployed) and those who want less (the overemployed) at the going wage.  The latter series was broadly flat until recently but was always above the fewer hours series before 2008.  That suggests there is still a good deal of under-utilized resources in the labour market available to be used up before the UK reaches full-employment.  There has been a rise both in the number of hours of those who want more hours and those who want less in the post-recession years. ”

From a new Microeconomic Insights post by Charles Jones and Pete Klenow:

“Economists are often accused of focusing excessively on GDP, with the result that government policies make GDP a priority to the detriment of other contributors to well-being. This research proposes a broader summary statistic that incorporates consumption, leisure, mortality and inequality. While the new statistic is highly correlated with GDP per capita, cross-national deviations are often large: Western Europe looks considerably closer to the United States; emerging Asia has not caught up as much; and many developing countries are further behind. Each component of the statistic plays a significant role in explaining these differences, with mortality being the most important. While still imperfect, the statistic arguably provides better guidance for determining public priorities and evaluating policies than does GDP alone.”

From a new IMF working paper:

“Financial technology (fintech) is emerging as an innovative way to achieve financial inclusion and the broader objective of inclusive growth. In addition to improving the speed, convenience, and efficiency of financial services, fintech has potential to promote financial inclusion. More specifically, it can enhance access to affordable financial services for unbanked populations and underserved small and medium sized enterprises (SMEs); reduce delays and costs in cross-border remittances; foster efficiencies and transparency in government operations, which helps reduce corruption, and facilitate social and humanitarian transfers in a manner that preserves human dignity.”

“For the Middle East, North Africa, Afghanistan and Pakistan (MENAP) and Caucasus and Central Asia (CCA) regions, fintech has a particularly valuable role to play as these potential benefits are aligned with the regions’ policy priorities. Both regions have countries with large unbanked populations, SMEs whose growth is constrained by limited access to finance, high youth unemployment, large remittance markets and informal transfers (Hawala), undiversified economies, vulnerabilities to terrorism, large income disparities, large displaced populations, and endemic corruption. Fintech innovations and underlying technologies can contribute to the solutions for many of these challenges.”

“The scale and pace of fintech in MENAP and CCA countries, however, lags other regions, and fintech is yet to foster an inclusive digital economy. Although there is significant diversity in the pace with which countries in both regions are adopting fintech, overall investment into fintech and the uptake of fintech and mobile financial services have been low compared to other regions. There also continues to be a strong preference for cash payments in the Middle East, despite the growth of e-commerce transactions. Consequently, the potential gap remains large in key areas such as financial inclusion, access to SMEs, diversification, reducing informal sector and the broader objective of inclusive growth.”