Ignore the austerity ‘jihadis’. Here’s an alternative economic strategy

Ignore the austerity ‘jihadis’. Here’s an alternative economic strategy

As the lockdown rules are eased, the economic and political ramifications of the Great Pandession of 2020 are only beginning to take shape. Some people are traumatised by the experience of the past three months while others look to the future with trepidation.

As is the case with most challenges, much hinges on the plan. What is the recovery plan? At the moment, there seems to be none bar the usual murmurs from the austerity jihadis – the old orthodoxy, who don’t seem to realise that the world has changed. We are not in Kansas anymore.

Beware Paschal Donohoe’s conventional thinking

Beware Paschal Donohoe’s conventional thinking

This is not the time for conventional thinking. We are in a pandession. As I wrote recently, a pandession is neither a recession, nor a depression – which are both consequences of economic exuberance. Traditional economic downturns are the wages of inflation.

Such inflation might be exhibited in wages and general prices (as we experienced here in the 1980s after the 1970s inflationary burst) or in house prices (as we experienced here in 2010 after the 2000-2008 credit splurge).

We are living through a ‘Pandession’ – here’s how we escape

We are living through a ‘Pandession’ – here’s how we escape

As the world economy remains largely closed down, it is essential to understand what we are experiencing. We are not living through a recession. Nor are we witnessing a depression. We are suffering from something new, something I’d like to term a “Pandession”.

A Pandession is a new word because it is a new thing. Language is vitally important when confronted with something novel. If you don’t have the language, you can’t visualise, conceive of or think your way out of it.

When will the money run out in the Covid-19 pandemic?

When will the money run out in the Covid-19 pandemic?

How long can we go on like this and when will the money run out? This is the question I am being asked all the time. Whether I am out for a walk, in the supermarket (at a safe distance) or on the phone, it’s the same question over and over. How long can we survive?

Some people are concerned about the massive increase in Government spending via the wage subsidy. When will that money run out? Small business owners want to know how long this can go on before they default on loans.

How to avoid an economic depression

How to avoid an economic depression

Whether or not we can avoid an economic depression will be determined by what we do now. Amid the pessimism it is crucial to appreciate that it is possible to avoid this outcome if we deploy all the right levers of economic policy. The European Central Bank (ECB) has underwritten the economy at borrowing rates below zero. As a result there should be no hesitation in borrowing more to tide us over.

We can also reprice existing debt to dramatically reduce the cost of outstanding debt, and we can boost demand to cushion the slump by putting money directly into people’s and businesses’ accounts.

Health crisis has now become a wealth crisis

Health crisis has now become a wealth crisis

Economics is not a cult. It is not a set of definitive, unchanging rules. It is not a religion. There is no creed. There are no believers and there is no dogma. While there are clubs or factions, membership of those is optional. At its core, economics is the art of the possible. It is the study of a complex system that is never at rest, a dynamic and adaptive system of enormous energy and potential. It evolves rather than grows or contracts.

The economy is like an immune system, dealing with new dangers, learning on the job and constantly acclimatising. Despite what most economists say, there is no such thing as equilibrium. A moment’s thought would tell you that an economy in equilibrium is a ludicrous notion.