The Economist - USA (2021-07-17)

64 Finance & economics The Economist July 17th 2021

TheIMF

Every little helps

T

he imfhas  not  exactly  stood  on  the

sidelines during the covid­19 pandem­

ic.  Since  the  onset  of  the  crisis,  it  has  ex­

tended  loans  worth  about  $130bn  to  85

countries and provided debt­service relief

to some poor economies. Yet given the se­

verity of the pandemic and theimf’s ample

balance­sheet—its  lending  capacity  was

boosted  to  a  cool  $1trn  after  the  global  fi­

nancial  crisis—you  might  have  expected

more. On July 8th the fund took what looks

like a big step in the right direction, by de­

ciding to create $650bn in new foreign­ex­

change reserves. How generous is it really?

The  plan  does  not  involve  direct  lend­

ing to countries, nor draw on the imf’s bal­

ance­sheet.  It  instead  entails  the  creation

and  allocation  of  “special  drawing  rights”

(sdrs),  a  quasi­currency  created  in  the

1960s  in  an  effort  to  boost  the  supply  of

high­quality reserve assets such as dollars

and gold. sdrs are valued against a basket

of  several  major  currencies  and  can  be

swapped  for  those  currencies  if  the  need

arises. There are no conditions attached to

the  use  of  such  funds,  and  the  associated

interest rate is minimal. Governments pay

0.05% on the sdrs they use, with no dead­

line by which the funds must be repaid. 

Such  allocations  are  a  familiar  crisis­

fighting  tool;  in  2009  the  imfagreed  on  a

distribution of $250bn. An allocation dur­

ing the pandemic might have come sooner

were it not for early opposition from Amer­

ica,  which  wields  sufficient  voting  power

to  block  such  measures.  President  Joe  Bi­

den’s administration, however, now backs

an  allocation.  (The  $650bn,  conveniently,

is just shy of the amount that requires ap­

proval  from  America’s  fractious  legisla­

ture.)  The  fund’s  board  of  governors  will

vote  on  the  disbursement  on  August  2nd.

If, as expected, it is approved, the sdrs will

be doled out later that month.

Whether  countries  draw  on  it  or  not,

the  extra  reserve  cushion  should  lift  mar­

ket  confidence  and  reduce  the  risk  that  a

draining away of foreign exchange leads to

balance­of­payments crises. (The fund es­

timates  that  over  the  next  five  years,  the

global economy is likely to face a shortage

of  reserve  assets  of  $1.1trn­1.9trn.)  Addi­

tional  reserves  may  come  in  especially

handy  if  a  rip­roaring  economic  recovery

leads  to  higher  interest  rates  in  America.

That could precipitate an outflow of mon­

ey  and  weaken  currencies  across  poor

countries,  leading  to  straitened  financial

WASHINGTON, DC

Will doling out more special drawing

rights help poor countries?

out its pandemic­related asset­purchase

scheme,butbeefupanolderpurchasepro­

grammeinstead.

Withoutbigchanges,itishardtosee

howtheecbcandoa betterjobofhitting

itstarget.InJunea rangeofeconomicfore­

casters, including those at the central

bank,projectedinflationtobeinthere­

gionof1.4­1.5%in2023.Ifitistosuccess­

fullyconvinceinvestorsandhouseholds

thatitmeansbusiness,thenthebankwill

havetoexplainwhy,whenitdoesnotex­

pecteventomeetitsoldtarget,itshould

suddenlybeabletohititsnewone. n

Welfareandwork

Make it pay

A

s americareopensforbusiness,la­

bour  shortages  continue  to  worsen.

Firms  are  advertising  over  9m  vacancies,

the  highest  on  record.  Bosses  complain

they  are  unable  to  find  people  to  serve

drinks,  staff  tills  or  drive  trucks.  So  in  an

attempt to eliminate the shortages, half of

states are ending a $300 weekly top­up to

unemployment  insurance  (ui),  in  place

since  January,  as  well  as  other  pandemic­

related ui programmes. Is this change hav­

ing the desired effect?

It depends whom you ask. On June 27th

the Wall Street Journal ran an article on Mis­

souri,  a  state  that  abolished  the  supple­

ment  on  June  12th,  claiming  that  people

were  flying  off  the  unemployment  rolls.

The very same day the New York Timesran

an article also on Missouri, which drew al­

most exactly the opposite conclusion. The

reality is somewhere in between these po­

larised extremes. Making benefits less gen­

erous may help America’s jobs market a lit­

tle—but  other  factors  do  more  to  explain

labour shortages.

Removing the $300 weekly top­up cer­

tainly  makes  living  off  welfare  less  com­

fortable.  At  that  level  40%  of  people  are

earning more than they were in their previ­

ous  jobs.  It  is  hard  to  say  right  now,  how­

ever,  whether  imposing  tougher  condi­

tions  translates  into  more  vigorous  job

searches. The first four states to abolish the

supplement did so too late for the effect, if

any, to show up in the latest jobs report, re­

leased on July 2nd. In the meantime econo­

mists must use high­frequency data, such

as  online  job  postings  and  weekly  figures

on claims for ui, which are less reliable. 

These suggest that a stingier ui makes a

difference.  Both  analysts  at  Morgan  Stan­

ley, a bank, and economists at the St Louis

Federal  Reserve  find  that  continuous

claims for uihave fallen the most in “early­

ending”  states.  Other  research  finds  simi­

lar trends in new claims for ui. But there is

enough  going  on  to  muddy  the  picture:

Daniel  Zhao  of  Glassdoor,  a  job­search

website,  adds  a  note  of  caution,  pointing

out that new claims were already dropping

faster in reforming states.

It  will  not  be  until  the  August  jobs  re­

port,  released  in  September,  that  wonks

will have a better idea of what is really go­

ing  on  at  the  state  level.  It  seems  likely,

though, that overall employment in Amer­

ica will by then be somewhat higher than it

would  have  been  without  the  cut  to  ui.  A

survey  from  Indeed,  a  job­search  website,

suggests  that  a  tenth  of  unemployed  peo­

ple  “not  urgently”  looking  for  work  feel

this way because of uipayments.

What is clear, however, is that there are

other  important  reasons  why  so  many

workers seem job­shy. Across America the

growth in the number of vacancies contin­

ued to rise in June and early July, according

to  Indeed.  That  suggests  that  workers  are

unlikely  to  be  battering  down  the  door  to

get an interview just because their benefit

top­ups have ended.

People’s  care  responsibilities  are  one

big  impediment  to  returning  to  work  (in­

person  schooling  is  only  set  to  resume  in

the autumn). A pile of “excess” household

savings  accumulated  during  the  pandem­

ic, amounting to more than $2trn in total,

has made it easier for many Americans to

withstand  a  spell  of  unemployment,  say

until  they  find  the  perfect  job.  Others  are

depending  on  the  salary  of  a  spouse  or

partner.  Moreover,  fear  of  catching  co­

vid­19 is still apparently holding many peo­

ple  back.  Who  would  choose  to  be  a  chef,

when research suggests that practically no

other occupation poses a higher riskofdy­

ing from covid­19? Until that threatabates,

expect labour shortages to continue.n

Cutting benefits might ease labour

shortages. But only by a bit

Going job-hunting