Fuzzynomics and 12 other attempts to name our new era

By Mohamed A El-Erian, chief economic advisor at Allianz and president of Queens’ College at the University of Cambridge

COVID-19 has turbocharged an economic, social, and political phenomenon that was partly visible going into the pandemic but, until now, lacked sufficient roots and momentum. Current events and history suggest that this phenomenon will be with us for a while, can deliver important gains for society, but also risks overshooting.

After almost four decades of deregulation and liberalization, governments in many advanced countries have reversed course and are reinserting themselves into their citizens’ daily lives. The catalyst is a pandemic that has inflicted tremendous human suffering, dislocated lives, worsened the inequality trifecta (of wealth, income, and, especially, opportunity), exploited economic and social vulnerabilities, exposed glaring fragilities in our systems and institutions, and simultaneously eroded social cohesion and individual resilience.

Most people can agree that governments had no choice but to step in and stop a calamity from becoming a multigenerational disaster. Setting aside all known limits on government budgets, states provided unprecedented direct income support to citizens while also protecting many businesses from bankruptcies. They funded vaccine innovation and deployment on a previously unknown scale. Some are pressing forward with massive infrastructure programs. And the list goes on.

While the scale and scope of these interventions have been unexpected, historic, and truly stunning, the direction of travel is not new. Going into the pandemic, the public sector had already been expanding and intervening after too many years of low and insufficiently inclusive growth.

Responding to intense feelings of alienation and marginalization in parts of society, both sides of the political spectrum were busy crafting new approaches. This was seen not just as an economic and social necessity but as politically attractive as well. Reacting to widespread grassroots pressure to address massive failures in the provision of critical public goods—such as protecting the planet, anchoring corporate social responsibility, and enhancing governance—governments got interested in launching multiyear responses that engaged many segments of society.

Meanwhile, led by the U.S. Federal Reserve and the European Central Bank—the world’s two most systemically important monetary institutions with powerful printing presses in their basements and an appetite to run those presses at turbo speed—central banks had been maintaining and intensifying their post-2008 market interventions in ways that were previously unthinkable. They, too, have started being pulled into supporting a broader set of public goods, including climate policy and combating inequality.

While all this was notable pre-pandemic, it pales in comparison with today’s realities on the ground—as well as what lies ahead.

COVID-19 also accelerated the process of corporate concentration and power, particularly in Big Tech. With pressure fueled by many increasingly visible mishaps in the private sector—involving national security, data leaks, fake news, platform surveillance, behavioral manipulation, and other issues—governments are also taking a wider and more serious look at enlarging and modernizing their regulatory and tax purview over the economy.

Judging from history, this swing of the pendulum will likely be long in duration and big in scope. If the return of government is well designed, it offers us the opportunity to address long-standing challenges, implement midcourse corrections to avoid future ones, adjust to new realities, and emerge stronger and wiser from a terrible pandemic. But this will need a degree of self-discipline that governments—and even central banks—have often struggled to impose in the past: that of avoiding market failures being compounded by failures of public sector institutions and governance. Already there are concerns about civil liberties, resource misallocations, and inflation.

Coming out of the 2008 global financial crisis, many policymakers declared “mission accomplished” in winning the war against what could have been a global, multiyear depression. In their haste, they inadvertently lost sight of the importance of also securing a lasting, durable, and comprehensive economic peace.

Today, vaccines and continued vigilance against infections and new virus variants offer us encouraging prospects to win this new war—this time, against a pandemic. Whether we can also win the peace will depend, to a large extent, on how governments navigate their much greater involvement in our lives.

By Dambisa Moyo, economist and author of How Boards Work and Edge of Chaos

An emerging economic culture will reframe how global corporations trade, invest, and behave.

As we move from the preeminence of financial shareholders to a broader stakeholder capitalism, corporations are switching to new metrics to assess success beyond profits. The new environmental, social, and governance (ESG) agenda is complex, involving a long list of issues for companies to consider—including climate change, worker empowerment, gender and racial diversity, pay equity, human rights, the provenance of goods and services, and, in the United States, even voter rights. Policymakers, companies, and financial institutions are under intense pressure on these matters from vocal ESG activists.

However, this new cultural frontier entails considerable trade-offs for leaders to navigate. For example, calls to defund energy companies to combat climate change ignore the fact that such an approach would risk fuel shortages and price spikes, adding to grinding poverty among the 1.5 billion people who still lack access to affordable and reliable energy. The shift to social goals has Western workers advocating for a better work-life balance, notably in the technology sector. But their Chinese competitors are still working 9-9-6: from 9 a.m. to 9 p.m., six days a week. Political and business leaders must weigh up the risks of Chinese practices being rejected by employees and customers in the West and vice versa.

Left unchecked, an aggressive ESG agenda could do more harm than good. In the new ESG era, leaders must approach the changing global landscape in a way that is transparent, consistent, flexible, innovative, sustainable, and sensitive to cultural differences. They must focus not only on risk mitigation but also on opportunities to create the upside leverage needed to support human progress in the future.

Dambisa Moyo sits on the boards of 3M and Chevron.

By Mariana Mazzucato, professor in the economics of innovation and public value at University College London

Business is talking about stakeholder capitalism. Governments are talking about the need to confront challenges such as climate change. The new era requires walking the talk—and putting common purpose at the center of how the public and private sectors interact. For too long, the relationship between government and corporations has been parasitic, not symbiotic. In areas like health, we have governments putting billions of dollars into drug innovation, yet taxpayers often cannot afford them. Government invented the internet but didn’t bother making sure that technology corporations wouldn’t abuse our privacy. A new social contract is required to make sure that stakeholder value and policies defined by the challenges they must solve go to the center of how business and the state interact—that is, in how they co-create value. This should affect how intellectual property rights are governed: to foster collective intelligence rather than rent-seeking. It should influence how internet algorithms are designed, which conditions on workers’ rights or emissions are attached to government subsidies and bailouts, and especially how profits are shared among different actors in the economy. Building back better, as U.S. President Joe Biden says he wants to do, cannot happen without this.

By Ian Bremmer, president of the Eurasia Group

The economic shockwaves created by the pandemic were extraordinary in many respects. As impressive as the recovery has been in much of the (vaccinated) world, it is staggeringly uneven both within and across countries. Developing countries, in particular, risk being left behind—with unsustainable debt levels, fragmented labor markets, polarized politics, and weakened governments at a time when the world has virtually no global leadership.

How best to grapple with the uncertainty of this new era? Firms will be more cautious in how they construct their international supply chains, and governments will be more involved in setting parameters for the economy. U.S. Federal Reserve Chair Jerome Powell once described the task of central banks as wandering in a dark room and feeling their way—just as Chinese leader Deng Xiaoping once described his country’s never-before-attempted path to economic reform as “crossing the river by feeling the stones.” But this requires steady leadership, consistent execution, and the absence of politicization. That’s not something the world can count on when the United States is both the West’s most powerful country—and the most politically divided and dysfunctional.

We are entering an undiscovered economic landscape. Let us heed William Shakespeare’s warning in Hamlet and not be cowards as we face the unknown:

The undiscovered country from whose bourn
No traveler returns, puzzles the will
And makes us rather bear those ills we have
Than fly to others that we know not of?

By Jayati Ghosh, professor of economics at the University of Massachusetts Amherst

Global inequalities were already extreme before the COVID-19 pandemic; now, even greater disparities are actually killing people. Opportunistic vaccine grabs by rich countries and knowledge colonialism through the control of intellectual property rights mean the disease will continue to destroy lives and economies. People in rich countries get big government with expanded services, income support, and more public spending, as they should. But in poor countries, people face cuts in government expenditure, fiscal austerity, and the brutal so-called discipline imposed by global finance. The resulting job losses, worsening livelihoods, hunger, and reduced access to crucial public services could lead to a lost generation across much of the developing world.

By Deirdre Nansen McCloskey, distinguished professor emerita at the University of Illinois at Chicago and author of Why Liberalism Works

After COVID-19, cries resound for the parent state to come to the aid of its adult children with spending and regulation galore. In the United States, liberalism has long meant such a tentative socialism. Yet the true liberalism of Adam Smith, Mary Wollstonecraft, and John Stuart Mill was better. It might be called “adultism,” floating above the statist spectrum of left and right, which both treat adults as sad or bad children. Liberalism accords them dignity, the permission to be without a master, whether aristocrat or bureaucrat.

True liberalism in the past two centuries has made much of the world rich and dignified. It liberated poor men, then slaves, women, colonized peoples, and LGBT people and allowed them to have a go. And go they did, innovating at a pace that has yielded a 1,000 percent increase in the world’s real income per person over the misery of 1800 and much more in some countries. Statism—reverting to the pre-liberal idea that people need parental masters—kills the innovation. Let’s not.

By Ruchir Sharma, head of emerging markets and chief global strategist at Morgan Stanley Investment Management and author of The 10 Rules of Successful Nations

The trillions of dollars spent to ease the economic pain of the pandemic has commentators marveling that “we are all Keynesians now.” But the current spending is a gross distortion of what that famous proponent of government stimulus, the economist John Maynard Keynes, recommended during the Great Depression nearly a century ago.

The prevailing view before Keynes was that the government should let nature run its course. That approach had worked over the preceding century, and then-U.S. Treasury Secretary Andrew Mellon advised President Herbert Hoover that if he let the Depression “liquidate” the weak links in the economy, it would emerge from the crisis stronger. The depth of the resulting pain discredited the old Darwinian approach forever.

It also opened the door to Keynes, who proposed instead that the government should borrow and spend to ease the pain of crises and stimulate recovery. His approach would guide the U.S. response to recessions through the 1960s. We were all true Keynesians then.

The old resistance to activist government eroded further in the early 1970s with the collapse of the Bretton Woods monetary system. Governments stopped backing their currencies with gold, making it easier to borrow and spend. Before 1970, the governments of developed countries rarely ran large deficits outside of major wars; since then, they have run substantial deficits virtually every year, whether times were hard or not.

A new era had begun, marked by an increasingly interventionist government. Leaving the spending spigots open was expected to trigger inflation, which came on cue in the late 1970s. Politicians left the problem to central bankers, who raised interest rates into the double digits, triggering severe recessions but whipping inflation. Inflation fell to around 2 percent in the developed economies and stayed there, contained by intensified global competition and technological advances.

As long as consumer price inflation was low, central banks and governments figured they could do whatever it took to cushion and even preempt downturns. The rate cut by the U.S. Federal Reserve following the stock market crash of late 1987 and the bailout of a private hedge fund in 1998 were prime examples of preemptive intervention. Corporate bailouts would grow increasingly sweeping and generous in subsequent crises.

The next big shift came in 2008. In addition to buying government bonds, central banks began using a rescue maneuver pioneered by Japan, directly buying commercial paper and other financial assets as another way to pump money into the economy.

Between 2008 and 2019, the central banks of the so-called G-4 (the United States, the European Union, Britain, and Japan) purchased more than $8 trillion in financial assets, expanding their total holdings to nearly $13 trillion. They bought more during that period than they had in all their previous history. What’s more, most of the purchases didn’t come until several years after the start of the recovery in 2009.

All this money flowing out of the central banks was not doing much to stimulate the economy. Former U.S. Treasury Secretary Lawrence Summers revived the phrase “secular stagnation” to describe persistently disappointing growth during this period. But with rates so low and borrowing so easy, it became increasingly popular to argue that deficits don’t matter.

The new view, widely held in both U.S. political parties, was that the government could keep borrowing to stimulate the economy—so long as inflation was contained and growth subpar. Under former President Donald Trump, Republicans pushed out a massive stimulus in the form of tax cuts eight years after the 2009 recession was over, creating the largest deficit ever seen in the later stages of an economic expansion.

Now, there is a widespread belief that President Joe Biden is ending an era of small government. But government was growing bigger and more active well before the pandemic, which greatly accelerated the trend. The G-4 governments have broken post-World War II records on fiscal stimulus in every big recession since 1980, reaching 2.6 percent of GDP in 2001, 5.3 percent in 2008, and 12.7 percent last year.

The G-4 central banks keep breaking records as well: Monetary stimulus reached around 5 percent of their combined GDP in 2001, 7 percent in 2008, and 19 percent in 2020. Last year, they bought another $8 trillion-plus in assets, matching in 12 months the record-smashing purchases of the prior 11 years. This year, central banks are continuing to buy billions of dollars’ worth of assets each month, including mortgage-backed securities, apparently unable to stop themselves even amid a global boom in housing and other assets.

What we have now is not Keynesian stimulus to ease recessions. It is the era of secular stimulus, with economies hooked on the increasingly unsatisfying drip feed of constant government support.

By Vera Songwe, executive secretary of the United Nations Economic Commission for Africa

Slow and steady evolution characterized the period before COVID-19. The pandemic, however, hit with a force that accelerated change all across our economic, social, and political structures, leading to a dynamic divergence within and among the world’s economies. This divergence is spilling over into all segments of society, resulting in greater and deeper inequality, widespread injustice, and a growing susceptibility to disinformation. Alliances are changing, growth poles are diverging, and innovation is accelerating—for better or worse.

The pandemic created the world’s first $200 billionaire, while more people in the advanced economies fell deeper into poverty. Inequality was also manifest at the global level, where developing nations lacked the financial liquidity to stave off the crisis while advanced countries injected trillions of dollars into their economies, discarding all caution about deficits and debt. The resulting inflationary pressures in advanced economies will further delay the growth of emerging and frontier economies—not least by raising the prices of crucial imports, especially food and fuel. The United States and China are drifting apart as they extract their supply chains from each other’s control. Europe is still strained by Brexit, while Latin America is seeing another resurgence of anti-market forces, with Peru electing a new populist and self-styled anti-market leader. Vaccine nationalism has left Africa vulnerable and late in the race for economic recovery, adding injustice to inequality and exacerbating the divergence in economic fortunes—even if the African Union has taken its destiny into its own hands by creating the COVID-19 African Vaccine Acquisition Task Team. Finally, the resistance to science and evidence-based policies, especially on the climate front, is accelerating the speed and raising the cost of this divergence. For this dynamic divergence to converge on a more harmonious steady state, it would require a renewed global multilateral system with more representative and inclusive institutions better suited for their purpose.

By Kevin Rudd, president and CEO of the Asia Society and former Australian prime minister

The main driver of this new era is no longer economic globalization but, increasingly, great-power competition. This competition—primarily between China and the United States—will dominate nearly every policy domain: trade and investment, financial markets, information technology, biotechnology, foreign policy, military power, and ideology. It will also dominate nearly every region of the globe as it draws countries, corporations, and institutions into an increasingly binary race.

For these reasons, we are also seeing the return of the state’s dominance as the enforcer of national competitive advantage, not just in China but also in the United States and elsewhere. While the efficiency costs will be high, this new period of “state-onomics” will continue until the outcome of the race for global supremacy is resolved.

The 2020s will therefore be a decade of living dangerously. To mitigate the risks—of crisis, conflict, and war—Washington and Beijing will likely find it in their interest to agree on some basic guardrails to contain their growing strategic competition. The coming era will, therefore, be one of managed strategic competition: Great-power rivalry will intensify, while red lines in national security are likely to be observed. Competition will be intense across the board, while defined areas of collaboration, such as on climate policy, will still be possible. And within this race: May the best system win. The alternative to managed strategic competition is an unmanaged one, which both great powers are likely to find too dangerous and destabilizing to sustain over the long term. The state will truly be back as a regulator, driver, and active participant in the economy, driven ultimately by the overriding dynamics of this new era of managed strategic competition.

By Stephanie Kelton, professor of economics and public policy at Stony Brook University

We have all become policy experimentalists in the new era ushered in by the 2008-09 global financial crisis and the COVID-19 pandemic. Whereas central banks were once considered uniquely well-equipped to restart the economic engine after a recession or tame inflationary pressures in a boom, fiscal policy is increasingly seen as a powerful and fast-acting way to reverse a downward spiral. When fiscal policy did too little—after the global financial crisis, for example—central bankers tried to compensate, experimenting with forward guidance and large-scale bond-buying programs known as quantitative easing. While the U.S. Federal Reserve cut interest rates to zero, a handful of other central banks experimented with negative rates. All of them hoped that the combination of asset purchases and near-zero interest rates would induce enough borrowing and spending to restore output and employment. The results were underwhelming.

The policy response improved in the wake of the pandemic. Technocrats at the world’s major central banks urged governments to deploy a robust fiscal response. To prevent a repeat of the 2010 government debt crisis that nearly unraveled the euro, the European Central Bank experimented with targeted bond buying. In the United States, Congress experimented with pandemic unemployment assistance to channel income support to those not eligible for regular unemployment compensation. It also experimented with payroll protection programs and intermittent cash payments that put money directly into the hands of most Americans. Some lawmakers wanted to experiment with large recurring payments that would go to every person in the United States until the crisis was over. Some wanted to experiment with triggers that would automatically extend unemployment benefits instead of waiting for an act of Congress each time those benefits ran out. For its part, the Fed is experimenting with a new policy framework known as average inflation targeting, a shift that has some economists worried that the central bank could fall behind the curve if inflation runs hot for an extended period of time.

That’s not my baseline prediction, but one thing seems clear: Should inflation break out, policymakers won’t put all their eggs in the rate-hike basket. They will experiment with new ways to contain the pressures driving up prices. And should the recovery stall or fail to produce enough jobs for all, we might even see some governments around the world try yet other experiments—such as a public job guarantee.

By Niall Ferguson, senior fellow at Stanford University’s Hoover Institution and author of Doom: The Politics of Catastrophe

In his book Apollo’s Arrow, Nicholas Christakis asks if, in the wake of the COVID-19 pandemic, we might find ourselves, like our grandparents and great-grandparents after the 1918-19 influenza pandemic, in the Roaring ’20s:

… the increased religiosity and reflection of the immediate and intermediate pandemic periods could give way to increased expressions of risk-taking, intemperance, or joie de vivre in the post-pandemic period. The great appeal of cities will be apparent once again. People will relentlessly seek opportunities for social mixing on a larger scale in sporting events, concerts, and political rallies. And after a serious epidemic, people often feel not only a renewed sense of purpose but a renewed sense of possibility. The 1920s brought the widespread use of the radio, jazz, the Harlem Renaissance, and women’s suffrage.

To say the least, this is a rather flattering sketch of the 1920s—a decade as notable in the United States for its violent criminals as for its flappers and elsewhere for hyperinflation, hunger, Bolshevism, and fascism. In any case, there are good reasons to doubt that the 2020s will be roaring in any sense at all, good or bad. Rather, the remainder of the decade may prove distinctly boring.

For one thing, the tedious habits most of us were forced to adopt during the pandemic may stay with us longer than we think. Recurrent outbreaks and new variants may necessitate our getting regular booster shots of vaccine, may force us to keep those irksome masks in our pockets and briefcases, and may oblige us to keep filling in online forms to enable us to get into offices and onto planes. Equally boring will be the way the world will revert to fighting its old battles the minute it has brought COVID-19 under control. Israelis and Palestinians have already resumed their old fight. Europeans will get back to arguing about immigration. And it will not take long for Republican criticisms of a Democratic administration to revert to the mean: deficits too high, taxes too high, immigration too high, crime too high.

Economists such as former U.S. Treasury Secretary Lawrence Summers worry about rising, if not roaring, inflation because of the outsized U.S. fiscal response relative to only a modest output gap and a rapid vaccine-driven recovery. The reality, I’m afraid, could be much less interesting. Absent a major geopolitical shock like a war, there is no guarantee that higher inflation will persist. Perhaps, as happened in the wake of the 2008 financial crisis, easy money will merely cause asset bubbles, not consumer price inflation.

The 1920s are also remembered by historians as a time when a first attempt to build a liberal international order—the League of Nations—failed to take root, mainly because the European powers could not sustain the various peace treaties signed after World War I without U.S. commitment. The 2020s may be a little like that, though it is a pandemic and not a war that the world is recovering from. Unlike its predecessor, and unlike the U.S. Congress in the 1920s, the Biden administration believes in the liberal international order and the institutions and alliances that undergird it. At the same time, the new administration is in some ways being tougher on China than its predecessor—though with an approach that is fundamentally different from former President Donald Trump’s indiscriminate protectionism.

Maybe this could all escalate nastily over Taiwan. But it seems just as likely that an initial period of diplomatic hardball will be followed swiftly by a U.S.-Chinese détente—in which case our decade might start to feel more like the boring ’70s than the Roaring ’20s.

By Antoine van Agtmael, author of The Emerging Markets Century, co-author of The Smartest Places on Earth, and senior advisor at FP Analytics

Long-held beliefs in democracy and market-based solutions are under attack from both the right and the left; we are entering an age of transition. At the same time, the torch of global preeminence is being passed to China, which is growing impatient in reclaiming its pre-Industrial Revolution role as the dominant economic power. Classic military doctrine and technology may soon prove flawed—if not futile—in a crisis over Taiwan that could challenge the United States’ superpower status. Political brinkmanship will be put to the test.

Three huge challenges are simultaneously overwhelming traditional market-based solutions: resistance to social change from the right, the backlash against economic and racial inequality from the left, and climate change.

Internationally, the center of gravity’s shift from West to East doesn’t give the United States much room to impose the rules of the bygone American Century. Its military, economic, and soft power are shrinking below the threshold required for dominance. U.S. technological superiority has not yet gone away but is under clear threat from China in crucial areas, such as artificial intelligence and electric cars, while Russia has become an alternative vaccine-maker. The U.S. dollar’s role as the preeminent reserve currency—always a symbol of superpower status—is running out of shelf life. Many Americans may still believe in their country’s exceptionalism, but the rest of the world no longer does.

Fuzzynomics is today’s post-pandemic recipe for new and old problems. Above all, it means spending your way out of trouble. It means throwing out the rulebook in the uncertain hope that it will work—in the same way that pumping up the global economy using monetary policy worked after the global financial crisis or Keynesian fiscal spending saved capitalism after the Great Depression. Western democracies seem to have little choice other than to keep printing and spending money as they fight a polarizing battle to keep in check a growing part of the electorate on the right and a left that has lost faith or simply refuses to face reality.

By Betsey Stevenson, professor of public policy and economics at the University of Michigan

People are emerging from a year of loss, isolation, and change. They will need to rekindle friendships and acquaintances and learn to be and feel safe in a crowd. Many will rediscover the thrill of a crowded concert or sporting event, while others will discover that new passions have replaced the old. People are rediscovering their work commute, and many workers and employers are busy discovering a new way of working—one that seeks to find a balance between the benefits of working from home and its costs. Millions of people have lost their jobs in industries that are contracting or where the pandemic hit particularly hard. These millions must discover new career paths as job openings surge but with no direct fit to what they were doing before the pandemic. Similarly, others are looking to discover a new career path or approach to work that is a better match for their newfound priorities. Americans accumulated trillions of dollars in savings during the lockdowns and will rediscover the joy of spending, particularly on experiences. But perhaps they will also discover that their tastes have changed. The pandemic changed technology and our relationship with it, and we will all be discovering how to use the advantages of technology in a world in which face-to-face contact is safe again. Enough time has passed that COVID-19 was not just a pause; we will not simply return to pre-pandemic life. We have a period of great adjustment ahead as we discover what comes back into our lives and what doesn’t, as well as what grows anew.