Posted by: Dirk | June 3, 2016

OECD: ‘Fiscal policy must be deployed more extensively’

This is from the OECD economic outlook June 2016’s editorial, written by OECD Chief Economist Catherine L. Mann:

Fiscal policy must be deployed more extensively, and can take advantage of the environment created by monetary policy. Governments today can lock in very low interest rates for very long maturities to effectively open up fiscal space. Prioritized and high quality spending generates the capacity to repay the obligations in the longer term while also supporting growth today. Countries have different needs and initial situations, but OECD research points to the kind of projects and activities that have high multipliers, including both hard infrastructure (such as digital, energy, and transport) and soft infrastructure (including early education and innovation). The right choices will catalyse business investment, which, as the Outlook of a year ago argued, is ultimately the key to propelling the economy from the low-growth trap to the high-growth path.

Interesting. I don’t share the idea of fiscal space – governments in debt in their own currency cannot go bankrupt – but this probably is as far as the OECD can go with respect to fiscal policy. Let me rephrase this paragraph for the layman:


Finally, in 2016, ECB, IMF and OECD call for the right policies. It’s about time.


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