As the end of 2019 approached, there was a lot of optimism. If the 2010s had been a lost decade, with weak growth and stagnant living standards, the following years had to be much better.
There was talk of a new “roaring 20s”, a repeat of the decade that followed the First World War. There were even elegant parties inspired by The Great Gatsby to celebrate the good times to come.
Today all this seems extremely premature. So far, the 2020s have been anything but happy. The pandemic that swept across the world in early 2020 is far from over and its impact continues to ripple through the global economy.
In China, where COVID-19 was first detected, authorities have enforced draconian lockdowns to eliminate the virus. As a result, the economy practically has been paralyzed (if we believe last year’s official numbers), or has contracted (if we don’t believe them).
The news from the other two great engines of the global economy is no better. The annual inflation rate in the United States is 9.1%, the highest in 40 years, and that is causing concern on Wall Street to wait for the central bank of the country to adopt a more aggressive perspective with rates. of interest.
If there are recession fears in the world’s biggest economy, those fears are even more pronounced in Europe, which has a war on its eastern flank, a power shortage scenario this winter and a political upheaval in Italy to contend with. It was no great surprise to see the euro fall below parity with the US dollar last week for the first time in two decades.
The problems are not limited to the world’s major economies, either. Sri Lanka – through a combination of the pandemic, the war in Ukraine and very poor management – is a country at the edge of collapse and it would be audacious to assume that the same will not happen with others. The International Monetary Fund and the World Bank are aware of the risks of new debt and hunger crises.
Meanwhile, the existential threat posed by global warming continues. Much was said that “building better” after the pandemic would also mean building greener, but this rhetoric has generally not been matched by action. And the clock doesn’t stop ticking.
reasons for hope
So, from the perspective of mid-2022, the idea of a new Roaring 20s seems farfetched, and the boasts of 2019 have been exposed for what they were: wishful thinking. The idea was that things could only get better, and they actually got a lot worse. This seems to be an era of permanent and successive crises: with the pandemic, followed by inflation and war. Unless our luck changes, then the recession will come.
For those who think the 2020s can still bounce back, there is reason for hope. The 1920s also got off to a dismal start. There was a pandemic, in the form of the Spanish flu. There was a civil war (and foreign military intervention) in the Soviet Union. What’s more, the five years after World War I were marked by economic turbulence that culminated in the German hyperinflation of 1923. The second half of the decade was much quieter than the first—at least until the Wall Street crash. late 1929.
The possibility of a new industrial revolution also offers cause for hope. When it came, the economic recovery of the interwar years was based on the widespread availability of technologies developed in the late 19th and early 20th centuries: cars, air travel, and radio among them.
For some time there has been much talk of a fourth industrial revolution based on advances in genomics, artificial intelligence, 3D printing and renewable energy. But we are still waiting for the boost that these developments are supposed to give to a struggling global economy.
What to do to improve
Perhaps history will repeat itself, and it will only be a matter of time until the new range of technologies fully blossoms. But if that happens, much more must be done to hasten a transition that, in the first half of the 20th century, was delayed by two world wars and a Great Depression.
There are four things that can help. The first is a stable but expanding economic environment in which policymakers get the right mix of low inflation and strong job growth. As current efforts by the US Federal Reserve and other major central banks show, this is not easy.
A benign macroeconomic environment is just the beginning. Greater investments are needed in the technologies of the fourth Industrial Revolution to bring them to the necessary scale, in particular carbon-neutral innovations. If the private sector does not provide these investments, then governments must be prepared to get involved.
Confronting inequality is the third step. Only when workers had jobs and purchasing power in the years after 1945 did they reap the benefits of earlier technological advances. And the same applies now. A readjustment of the relationship between capital and labor is long overdue, as is the need to rethink the tax system to make it more progressive. The huge gains made by people with property and financial assets as a result of low interest rates and expansionary monetary policy have made the case for wealth taxes more compelling.
Finally, there must be greater international cooperation, instead of the fragmentation and hostility that currently exists. Poor countries must be part of the fight against climate change, but they will only be able to do so if there is some form of global redistribution, starting with debt relief.
All of this may seem strange, but a return to the roaring ’20s would also be strange. The assumption that it’s only a matter of time until a happy time arrives is delusional.
Translation of Patricio Orellana