On December 12, the Federal Reserve chairman Ben Bernanke announced that America's central bank will keep interest rates at close to zero until the unemployment rate falls to 6.5 per cent, provided inflation expectations remain subdued.
While the Fed's governing statutes, unlike those of the European Central Bank, explicitly include a mandate to support employment, the announcement marked the first time that the Fed had tied its interest-rate policy to a numerical employment target. It is a welcome breakthrough, and one that should be emulated by others - not least the ECB.
Central banks' statutes differ in terms of the objectives that they set for monetary policy. All include price stability. Many add a reference to general economic conditions, including growth and employment or financial stability. Some give the central bank the authority to set an inflation target unilaterally.
There is no recent example, however, of a major central bank setting a numerical employment target. This should change, as the size of the employment challenge facing the advanced economies becomes more apparent.
Weak labour markets, low inflation, and debt overhang suggest that a fundamental reordering of priorities is in order.
In Japan, Shinzo Abe, the incoming prime minister, is signalling the same set of concerns, although he seems to be proposing a "minimum" inflation target for the Bank of Japan, rather than a link to growth or employment.
The spread of global value-chains that integrate hundreds of millions of developing-country workers into the global economy, as well as new labour-saving technologies, imply little chance of cost-push wage inflation.
Likewise, the market for long-term bonds indicates extremely low inflation expectations (of course, interest rates are higher in cases of perceived sovereign default or re-denomination risk, such as in southern Europe.
Moreover, the deleveraging under way since the 2008 financial implosion could be easier if inflation were moderately higher for a few years, a debate the IMF encouraged a year ago.
Together with these considerations, policymakers should take into account the tremendous human and economic costs of high unemployment, ranging from the millions of shattered lives, skills erosion, and disappearance of opportunities for an entire generation, to the deadweight loss of idle human resources.
Is the failure to ensure that millions of young people acquire the skills required to participate in the economy not as great a liability for a society as a large stock of public debt?
Nowhere is this reordering of priorities more needed than in the euro zone. Yet, strangely, it is the Fed, not the ECB, that has set an unemployment target.
The unemployment rate in the United States has declined to about 7.7 per cent and the current-account deficit is close to US$500 billion (Dh1.83 trillion), while euro-zone unemployment is at a record high, near 12 per cent, and the current account shows a surplus approaching $100bn.
If the ECB's inflation target were 3 per cent, rather than close to but below 2 per cent, and Germany, with the world's largest current-account surplus, encouraged 6 per cent wage growth and tolerated 4 per cent inflation - implying modest real-wage growth in excess of expected productivity gains - the euro-zone adjustment process would become less politically and economically costly.
Indeed, the policy calculus in northern Europe greatly underestimates the economic losses due to the disruptions imposed on southern Europe by excessive austerity and wage deflation. The resulting high levels of youth unemployment, health problems, and idle production capacity also all have a substantial impact on demand for imports from the north.
Contrary to conventional wisdom, the ECB's legal mandate would allow such a reordering of priorities, as, with reference to the ECB, the Treaty on the Functioning of the European Union states that "The primary [emphasis added] objective of the European System of Central Banks … shall be to maintain price stability," and there is another part of the treaty dealing with general euro-zone economic policies that emphasises employment. This would seem not to preclude a temporary complementary employment objective for the ECB at a time of exceptional challenge.
Moreover, the ECB has the authority to set the euro-zone-wide inflation target, and could set it higher for two or three years, without any treaty violation. The real problem is the current political attitude in Germany. Somehow, the memory of hyperinflation in the early 1920s seems scarier than that of massive unemployment in the early 1930s, although it was the latter that fuelled the rise of Nazism.
In a more global context, none of this is to dismiss the longer-term dangers of inflation. In most countries, at most times, inflation should be kept very low - and central banks should anchor inflation expectations with a stable long-term target, although the alternative of targeting nominal GDP deserves to be discussed.
Moreover, monetary policy cannot be a long-term substitute for structural reforms and sustainable budgets. Long periods of zero real interest rates carry the danger of asset bubbles, misallocation of resources, and unintended effects on income inequality, as recent history - not least in the US and Japan - demonstrates.
For the coming two to three years, however, particularly in Europe, the need for deleveraging, the costs of widespread joblessness, and the risk of social collapse make the kind of temporary unemployment target announced by the Fed highly desirable.
Kemal Dervi, a former minister of economy in Turkey, is the vice president of the Brookings Institution in Washington
* Project Syndicate
The rules of the road keeping cyclists safe
Cyclists must wear a helmet, arm and knee pads
Have a white front-light and a back red-light on their bike
They must place a number plate with reflective light to the back of the bike to alert road-users
Avoid carrying weights that could cause the bike to lose balance
They must cycle on designated lanes and areas and ride safe on pavements to avoid bumping into pedestrians
Company profile
Company: Zywa
Started: 2021
Founders: Nuha Hashem and Alok Kumar
Based: UAE
Industry: FinTech
Funding size: $3m
Company valuation: $30m
The biog
Mission to Seafarers is one of the largest port-based welfare operators in the world.
It provided services to around 200 ports across 50 countries.
They also provide port chaplains to help them deliver professional welfare services.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Tips for job-seekers
- Do not submit your application through the Easy Apply button on LinkedIn. Employers receive between 600 and 800 replies for each job advert on the platform. If you are the right fit for a job, connect to a relevant person in the company on LinkedIn and send them a direct message.
- Make sure you are an exact fit for the job advertised. If you are an HR manager with five years’ experience in retail and the job requires a similar candidate with five years’ experience in consumer, you should apply. But if you have no experience in HR, do not apply for the job.
David Mackenzie, founder of recruitment agency Mackenzie Jones Middle East
MATCH INFO
Norwich City 0 Southampton 3 (Ings 49', Armstrong 54', Redmond 79')
COMPANY PROFILE:
Name: Envision
Started: 2017
Founders: Karthik Mahadevan and Karthik Kannan
Based: The Netherlands
Sector: Technology/Assistive Technology
Initial investment: $1.5 million
Current number of staff: 20
Investment stage: Seed
Investors: 4impact, ABN Amro, Impact Ventures and group of angels
The story in numbers
18
This is how many recognised sects Lebanon is home to, along with about four million citizens
450,000
More than this many Palestinian refugees are registered with UNRWA in Lebanon, with about 45 per cent of them living in the country’s 12 refugee camps
1.5 million
There are just under 1 million Syrian refugees registered with the UN, although the government puts the figure upwards of 1.5m
73
The percentage of stateless people in Lebanon, who are not of Palestinian origin, born to a Lebanese mother, according to a 2012-2013 study by human rights organisation Frontiers Ruwad Association
18,000
The number of marriages recorded between Lebanese women and foreigners between the years 1995 and 2008, according to a 2009 study backed by the UN Development Programme
77,400
The number of people believed to be affected by the current nationality law, according to the 2009 UN study
4,926
This is how many Lebanese-Palestinian households there were in Lebanon in 2016, according to a census by the Lebanese-Palestinian dialogue committee
Engine: 80 kWh four-wheel-drive
Transmission: eight-speed automatic
Power: 402bhp
Torque: 760Nm
Price: From Dh280,000
The specS: 2018 Toyota Camry
Price: base / as tested: Dh91,000 / Dh114,000
Engine: 3.5-litre V6
Gearbox: Eight-speed automatic
Power: 298hp @ 6,600rpm
Torque: 356Nm @ 4,700rpm
Fuel economy, combined: 7.0L / 100km
Jeff Buckley: From Hallelujah To The Last Goodbye
By Dave Lory with Jim Irvin
Common OCD symptoms and how they manifest
Checking: the obsession or thoughts focus on some harm coming from things not being as they should, which usually centre around the theme of safety. For example, the obsession is “the building will burn down”, therefore the compulsion is checking that the oven is switched off.
Contamination: the obsession is focused on the presence of germs, dirt or harmful bacteria and how this will impact the person and/or their loved ones. For example, the obsession is “the floor is dirty; me and my family will get sick and die”, the compulsion is repetitive cleaning.
Orderliness: the obsession is a fear of sitting with uncomfortable feelings, or to prevent harm coming to oneself or others. Objectively there appears to be no logical link between the obsession and compulsion. For example,” I won’t feel right if the jars aren’t lined up” or “harm will come to my family if I don’t line up all the jars”, so the compulsion is therefore lining up the jars.
Intrusive thoughts: the intrusive thought is usually highly distressing and repetitive. Common examples may include thoughts of perpetrating violence towards others, harming others, or questions over one’s character or deeds, usually in conflict with the person’s true values. An example would be: “I think I might hurt my family”, which in turn leads to the compulsion of avoiding social gatherings.
Hoarding: the intrusive thought is the overvaluing of objects or possessions, while the compulsion is stashing or hoarding these items and refusing to let them go. For example, “this newspaper may come in useful one day”, therefore, the compulsion is hoarding newspapers instead of discarding them the next day.
Source: Dr Robert Chandler, clinical psychologist at Lighthouse Arabia
Grand Slam Los Angeles results
Men:
56kg – Jorge Nakamura
62kg – Joao Gabriel de Sousa
69kg – Gianni Grippo
77kg – Caio Soares
85kg – Manuel Ribamar
94kg – Gustavo Batista
110kg – Erberth Santos
Women:
49kg – Mayssa Bastos
55kg – Nathalie Ribeiro
62kg – Gabrielle McComb
70kg – Thamara Silva
90kg – Gabrieli Pessanha
COMPANY PROFILE
Company name: Almouneer
Started: 2017
Founders: Dr Noha Khater and Rania Kadry
Based: Egypt
Number of staff: 120
Investment: Bootstrapped, with support from Insead and Egyptian government, seed round of
$3.6 million led by Global Ventures
The Lowdown
Kesari
Rating: 2.5/5 stars
Produced by: Dharma Productions, Azure Entertainment
Directed by: Anubhav Singh
Cast: Akshay Kumar, Parineeti Chopra
UAE currency: the story behind the money in your pockets
MATCH INFO
Crawley Town 3 (Tsaroulla 50', Nadesan 53', Tunnicliffe 70')
Leeds United 0
Why your domicile status is important
Your UK residence status is assessed using the statutory residence test. While your residence status – ie where you live - is assessed every year, your domicile status is assessed over your lifetime.
Your domicile of origin generally comes from your parents and if your parents were not married, then it is decided by your father. Your domicile is generally the country your father considered his permanent home when you were born.
UK residents who have their permanent home ("domicile") outside the UK may not have to pay UK tax on foreign income. For example, they do not pay tax on foreign income or gains if they are less than £2,000 in the tax year and do not transfer that gain to a UK bank account.
A UK-domiciled person, however, is liable for UK tax on their worldwide income and gains when they are resident in the UK.
‘White Elephant’
Director: Jesse V Johnson
Stars: Michael Rooker, Bruce Willis, John Malkovich, Olga Kurylenko
Rating: 3/5
PRO BASH
Thursday’s fixtures
6pm: Hyderabad Nawabs v Pakhtoon Warriors
10pm: Lahore Sikandars v Pakhtoon Blasters
Teams
Chennai Knights, Lahore Sikandars, Pakhtoon Blasters, Abu Dhabi Stars, Abu Dhabi Dragons, Pakhtoon Warriors and Hyderabad Nawabs.
Squad rules
All teams consist of 15-player squads that include those contracted in the diamond (3), platinum (2) and gold (2) categories, plus eight free to sign team members.
Tournament rules
The matches are of 25 over-a-side with an 8-over power play in which only two fielders allowed outside the 30-yard circle. Teams play in a single round robin league followed by the semi-finals and final. The league toppers will feature in the semi-final eliminator.
England's Ashes squad
Joe Root (captain), Moeen Ali, Jimmy Anderson, Jofra Archer, Jonny Bairstow, Stuart Broad, Rory Burns, Jos Buttler, Sam Curran, Joe Denly, Jason Roy, Ben Stokes, Olly Stone, Chris Woakes.
WHY AAYAN IS 'PERFECT EXAMPLE'
David White might be new to the country, but he has clearly already built up an affinity with the place.
After the UAE shocked Pakistan in the semi-final of the Under 19 Asia Cup last month, White was hugged on the field by Aayan Khan, the team’s captain.
White suggests that was more a sign of Aayan’s amiability than anything else. But he believes the young all-rounder, who was part of the winning Gulf Giants team last year, is just the sort of player the country should be seeking to produce via the ILT20.
“He is a delightful young man,” White said. “He played in the competition last year at 17, and look at his development from there till now, and where he is representing the UAE.
“He was influential in the U19 team which beat Pakistan. He is the perfect example of what we are all trying to achieve here.
“It is about the development of players who are going to represent the UAE and go on to help make UAE a force in world cricket.”
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Saturday's schedule at the Abu Dhabi Grand Prix
GP3 race, 12:30pm
Formula 1 final practice, 2pm
Formula 1 qualifying, 5pm
Formula 2 race, 6:40pm
Performance: Sam Smith
THE SPECS
Engine: 3.6-litre V6
Transmission: eight-speed automatic
Power: 285bhp
Torque: 353Nm
Price: TBA
On sale: Q2, 2020
THE SPECS
Range Rover Sport Autobiography Dynamic
Engine: 5.0-litre supercharged V8
Transmission: six-speed manual
Power: 518bhp
Torque: 625Nm
Speed: 0-100kmh 5.3 seconds
Price: Dh633,435
On sale: now