The deeper the slump, economists used to say, the stronger the recovery.
They don’t say that anymore.
The effects of the crash of 2008 still reverberate, with the latest forecasts for global growth even more dismal than the last.
The persistently stagnant world economy is more than just a rebuke to economic theory, of course; it exacts a human toll.
And while politicians and central bankers — or economists, for that matter — can’t be faulted for their creativity, their remedies might have more impact if they were bolder and better-coordinated.
By ordinary standards, to be sure, governments haven’t been timid. Without fiscal stimulus and aggressive monetary easing in the US and other countries, things would look even worse.
And yet worldwide output is predicted to rise only 3.2% this year, falling still further below the pre-crash trend. Simply doubling down on current strategies is unlikely to work.
What about new fiscal stimulus? Where possible, that would be good — but it’s hardest to do in the very countries that need it most, because that’s where public debt is already dangerously high.
It’s a pity that governments aren’t trying harder to co-ordinate their fiscal policies more intelligently, or at all. The global slump persists partly because of international spillovers.
Better co-ordination would take these into account: Countries that could safely deploy fiscal stimulus would give some weight to global as well as national conditions, and fiscal policy would be formed interactively.
Even within the EU, where you’d expect economic co-ordination to be the norm, and where the single currency makes it essential, there’s no sign of it.
At the global level, in forums such as the IMF, you might expect the US to take the lead. So it should — but it will need to mend its shattered policy-making machinery first.
If Washington can’t come to a decision on its own on taxes or spending, the question of co-ordination doesn’t arise.
The last resort, if the slump goes on and governments can’t co-ordinate better, might be to combine monetary and fiscal policy in a hybrid known — unfortunately — as helicopter money.
Governments would cut taxes and/or spend more, but meet the cost by printing money rather than by borrowing. In one variant, central banks might simply send out cheques to taxpayers.
That’s a startling idea, no doubt — but so was quantitative easing not long ago.
In one way, helicopter money would actually work better than QE: It acts directly on spending and couldn’t fail to stimulate demand.
On one hand, then, you have the prospect of persistently slow global growth, and all the waste of talent and resources that entails.
On the other, you have a few untried remedies that governments can’t or won’t use.
Maybe, as the first point sinks in, governments will be willing to take a hard look at the second.
Eight years after the crash, the problem sure isn’t taking care of itself.
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