If the OECD is right, global GDP will return to pre-pandemic levels next year. But in its more optimistic scenario, it forecasts that global GDP could even return to the level it projected for next year before the pandemic struck. It says that it all depends. But here is what’s missing from the OECD narrative: technology.
It all boils down to vaccines. “Speed is of the essence,” said OECD Secretary-General Angel Gurría. “There is no room for complacency. Vaccines must be deployed faster and globally. This will require better international co-operation and co-ordination than we have seen up to now.”
He is not wrong; vaccine protectionism poses a massive threat to the global economy. But then again, vaccines will be subject to learning rates. The more vaccines are produced and administered, the better we will get at doing it.
Covid spread exponentially, and in the early days, the implications were underestimated, at everyone’s cost. But vaccine rollout will grow exponentially too, and I suspect we are too pessimistic in estimating the implications.
As for the economy
Keynesian economics suggests that under certain circumstances, a massive government stimulus is required to kickstart the economy; alas, such stimulus are rarely popular. The narrative that the government is like a household and must live within its means becomes dominant.
There are occasions when public spending can suffocate the economy — under such circumstances it has to be reined in.
Those are not the circumstances we see today.
We have seen interest rates hover around an all-time low for around 12-years, and despite this, economic performance across the developed world has been poor. The penny must surely have dropped by now; these are times, just like the 1920s in Europe and 1930s in America, where the economy is being held back by lack of demand.
The frustration felt by those who advocate a Keynesian stimulus is that the political will is not supportive of such a plan in peacetime. But, during wartime, it is. Post the Napoleonic War and then World War 2, the UK government debt to GDP exceeded 200 per cent. And guess what happened next? The economy went on to experience what at that time was record growth and for a sustained period. From 1950 to 1973, the UK enjoyed its best economic performance ever, and it began with a massive Keynesian stimulus.
We are at war again; this time, the enemy is a virus.
So far, then, there are parallels with the past.
But post-Napoleonic Britain and post World War 2, Britain had something else in common. The previous periods — 1760 to around 1820 — and 1865 to 1914 — were periods of remarkable technological innovation. The post-Napoleonic boom combined a massive Keynesian stimulus with a technology legacy that had not been fulfilled. Post World War 2, we at last learned how to turn the innovations off the late Victorian era and early 20th Century into wealth that trickled down into households across the income spectrum.
Today, we are in the midst of the fourth industrial revolution. Covid has accelerated the uptake of fourth industrial revolution technologies such as AI, automation and technology-enabled remote working.
New technologies such as CRISPR/Cas 9, augmented reality, autonomous cars, advanced AI, etcetera could potentially create even greater economic potential.
The combination of technology and Covid creating wartime like mentality leading to massive government spending could create an economic boom like nothing seen before.
Instead, the lazy narrative that inflation will surge, the absurd narrative that technology innovation is slowing down, dominates.
If we are not careful, the economic boom will be strangled and never gain momentum.
I suspect not, though; the 2020s could be a golden age for the economy.
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