Unsustainable policies and their remedies

Five questions that need answering

How will the global economy recover from the Covid-19 shock? Most observers wish for a rapid and sustained recovery and expansion. However, this wish is unlikely to be granted.

Prior to the pandemic, the global economy had ‘preconditions’ implying that it was already on an unsustainable path. While stocks of debt and greenhouse gases were rising continuously, towards ever more dangerous levels, the stocks of trust and political good will needed to achieve sustainable policy solutions were falling equally alarmingly. Growing economic and social disparities contributed materially to rising political tensions.

Moreover, the public policies used to cushion the economic impact of the pandemic have in many respects aggravated the ‘preconditions’ problem. Paring back stimulus has become ever more necessary, but ever more likely to trigger future problems. The crisis has also affected poorer members of society disproportionately. To get off this bad path will require a ‘total reset’ rather than the incremental changes desired by those who wish to ‘build back better’.

Fostering a sustainable recovery, in spite of such preconditions, requires answering five questions. First, what public policies have led us to the current unsustainable state of affairs – what I call ‘policy preconditions’ – and should be avoided in the future? Second, what future shocks threaten sustainable growth? Third, what would a more sustainable global economy look like? Fourth, what policies are required to get ‘there from here’? Fifth, how do we – to use John Kenneth Galbraith’s phrase – choose between the ‘unpalatable’ and the ‘disastrous’?

My analysis emphasises the importance of monetary and fiscal policies in both shaping the recent path, and conditioning the future. However, interactions over time between the global economic system and the surrounding political and environmental framework are also crucially important. These interactions imply the need for policies with a much longer-term focus than hitherto. As well, it requires global political leaders able to rise to the challenge of choosing the ‘unpalatable’ over the ‘disastrous’.

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Πηγή: omfif.org

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