Since World War II, Germany has served as an economic anchor for Europe and has weathered global and regional storms better than most other countries. The reason is not that she was lucky, but that she remained committed to a proven policy-making approach rooted in mainstream economics.
COLOGNE – The COVID-19 pandemic has intensified ongoing debates over the future of capitalism and the best economic framework to meet the long-term needs of the post-pandemic world. Developed economies will of course need strong growth to offset the economic damage caused by the virus and to meet the challenges posed by climate change and an aging society. And yet, in the developed world, the pace of economic growth has been slowing for decades, casting doubt on how these challenges will be met.
How to bridge the gap between real growth and necessary growth? Should developed economies continue to focus on Keynesian demand management, thus risking accumulating ever more debt? Or should we move to a longer-term, rules-based approach that anchors expectations and builds trust, albeit at the expense of some discretion?
Such questions have become urgent, and yet are not directly resolved. Throughout the pandemic, the consensus has been that governments should step in to stimulate aggregate demand through fiscal and monetary stimulus. Yet while a decisive response to the crisis was clearly needed to avert an economic death spiral last spring, little attention has been paid to the pitfalls of demand management – from the implications of massive government deficits to the potential. inflation recovery, loss of business confidence and the future. fiscal policies.
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