OECD Parallel Universes

There’s some Canadian economists that want to know if the Bank of Canada is living in a parallel Universe because they are painting a pretty rose picture of the Canadian economy. But it may not be the Bank of Canada looking at life through beer goggles, ouija boards, or mind altering plants – it may actually be the OECD itself: a seemingly headquarters of altered states of reality.

Granted, in the United States, the Federal Reserve has never counted on OECD data to guide them, but then again, there’s nothing quite like American Political Economy. And in Canada, they are still recovering from the onslaught against data that the previous conservative government sliced up with austerity. The OECD is pretty much all they have right now in anything resembling data – emphasis on “resembling.”

Look at these projections from the OECD for the 2016 Global economic outlook, wth the red line being Canada:

OECD Outlook

Somehow, according to the OECD, GDP growth is supposed to be so far beyond what the Bank of Canada hoped for, that the government is going to buy Champaign for every Canadian! Meanwhile, unemployment is still going to be above OECD average, while investment and consumption is projected to be below OECD average.

It seems someone was absent the day they taught macroeconomics in Principles of Macroeconomics. You absolutely cannot have GDP growth if you don’t have consumption, investment and low unemployment.

And to be sure that the OECD is tossing the mortal coil, their projections for the United States seem to be grounded in nothing more than psychedelics:

OECD Outlook US

According to these numbers, the Federal Reserve should be raising interest rates to 5% by the end of the year. Is 2.5% GDP growth out of reach for the U.S.? No. However, it’s been pretty cyclical since the 2008 recession, alternating between 1.4 and 2.5 since the “recovery.” The U.S. is due for a “low swing” for 2016.

fredgraph

This of course does not take into account: the global stock market bloodbath, the free falling price of oil, a China that is figuring out that they must rely on internal consumption rather than investment, and more dark clouds hovering over the European Union.

So it may not be the Bank of Canada that is living in a parallel universe – it may be the OECD, and the Bank of Canada is just drinking the Kool Aid; not that it would be any better. But it does indicate that there is a fundamental structural problem with the way that economic institutions (which in the end, are social institutions) are structured to allow for altered states of reality, no matter what universe they are in.

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