Good advice in the pandemic: The hour of the economists (Comment by Gerald Braunberger)

With conspiracy murmurs, verbal witch hunts, muffled roars and other forms of escapism, neither crises nor their aftermath can be meaningfully combated. Progress is more likely to be found through expertise and the willingness to discuss old and new findings in a meaningful and open-ended manner.

And so this crisis, which affects many areas of life, is also the opportunity for economists to play a constructive role in the search for solutions. In the current situation, there is a particular demand for level-headed economists who, backed by solid evidence, resist the idea that one can mollify the economic consequences of the Corona crisis simply by spending more and more money.

Many an economist seem to harbour the notion that growing national debt is not problematic because it is self-financing through economic growth and, in case of doubt, the refinancing of outstanding bonds is secured by the central bank. However, almost every recession not only damages growth temporarily but also the long-term growth trend.

Long-term economic growth faces pressure in many industrial nations, if only due to demographic trends and low productivity growth. Unfortunately, the possibility cannot be ruled out that government debt will not finance itself. And thus dispatching the widespread thesis that government debt does not burden future generations.

We should also not rely on the central banks as limitless buyers of government bonds in the long term. Behind the scenes, policymakers have long tried to teach governments that monetary policy cannot long remain as expansionary as it is at present.

How much leeway the ECB still has is not clear after the Karlsruhe ruling. For this reason, the Council of Economic Experts, now chaired by Lars Feld, is to be commended for defying the fairy tale of the financial goodie bag and making concrete proposals, like the extension of the loss carry-back for companies, that can aid the economy without ruining the state.

 

Source: Frankfurter Allgemeine Zeitung https://www.faz.net/aktuell/wirtschaft/rat-in-der-corona-pandemie-die-stunde-der-oekonomen-16784006.html#void, 24.05.2020, Gerald Braunberger, © All rights reserved. Frankfurter Allgemeine Zeitung GmbH, Frankfurt.