That 1970s Feeling
Support our newsroom by MAKING A CONTRIBUTION HERE
Policymakers and too many economic commentators fail to grasp how the next global recession may be unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp drops in production, generalized shortages, and rapidly rising prices.
CAMBRIDGE – It is too soon to predict the long-run arc of the coronavirus outbreak. But it is not too soon to recognize that the next global recession could be around the corner – and that it may look a lot different from those that began in 2001 and 2008.
For starters, the next recession is likely to emanate from China, and indeed may already be underway. China is a highly leveraged economy, it cannot afford a sustained pause today anymore than fast-growing 1980s Japan could. People, businesses, and municipalities need funds to pay back their out-size debts. Sharply adverse demographics, narrowing scope for technological catch-up, and a huge glut of housing from recurrent stimulus programs – not to mention an increasingly centralized decision-making process – already presage significantly slower growth for China in the next decade.
Moreover, unlike the two previous global recessions this century, the new coronavirus, COVID-19, implies a supply shock as well as a demand shock. Indeed, one has to go back to the oil-supply shocks of the mid-1970s to find one as large. Yes, fear of contagion will hit demand for airlines and global tourism, and precautionary savings will rise. But when tens of millions of people can’t go to work (either because of a lockdown or out of fear), global value chains break down, borders are blocked, and world trade shrinks because countries distrust of one another’s health statistics, the supply side suffers at least as much.
Affected countries will, and should, engage in massive deficit spending to shore up their health systems and prop up their economies. The point of saving for a rainy day is to spend when it rains, and preparing for pandemics, wars, climate crises, and other out-of-the-box events is precisely why open-ended deficit spending during booms is dangerous.
But policymakers and altogether too many economic commentators fail to grasp how the supply component may make the next global recession unlike the last two. In contrast to recessions driven mainly by a demand shortfall, the challenge posed by a supply-side-driven downturn is that it can result in sharp declines in production and widespread bottlenecks. In that case, generalized shortages – something that some countries have not seen since the gas lines of 1970s – could ultimately push inflation up, not down.
Admittedly, the initial conditions for containing generalized inflation today are extraordinarily favorable. But, given that four decades of globalization has almost certainly been the main factor underlying low inflation, a sustained retreat behind national borders, owing to a COVID-19 pandemic (or even lasting fear of pandemic), on top of rising trade frictions, is a recipe for the return of upward price pressures. In this scenario, rising inflation could prop up interest rates and challenge both monetary and fiscal policymakers.
was already tipping into recession after an ill-timed hike in the value-added tax, and Germany’s has been teetering amidst political disarray. The United States is in the best shape, but what once seemed like a 15% chance of a recession starting before the presidential and congressional elections in November now seems much higher.
It might seem strange that the new coronavirus could cause so much economic damage even to countries that seemingly have the resources and technology to fight back. A key reason is that earlier generations were much poorer than today, so many more people had to risk going to work. Unlike today, radical economic pullbacks in response to epidemics that did not kill most people were not an option.
What has happened in Wuhan, China, the current outbreak’s epicenter, is extreme but illustrative. The Chinese government has essentially locked down Hubei province, putting its 58 million people under martial law, with ordinary citizens unable to leave their houses except under very specific circumstances. At the same time, the government apparently has been able to deliver food and water to Hubei’s citizens for roughly six weeks now, something a poor country could not imagine doing.
Elsewhere in China, a great many people in major cities such as Shanghai and Beijing have remained indoors most of the time in order to reduce their exposure. Governments in countries such as South Korea and Italy may not be taking the extreme measures that China has, but many people are staying home, implying a significant adverse impact on economic activity.
The odds of a global recession have risen dramatically, much more than conventional forecasts by investors and international institutions care to acknowledge. Policymakers need to recognize that, besides interest rate cuts and fiscal stimulus, the huge shock to global supply chains also needs to be addressed. The most immediate relief could come from the US sharply scaling back its trade-war tariffs, thereby calming markets, exhibiting statesmanship with China, and putting money in the pockets of US consumers. A global recession is a time for cooperation, not isolation.
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.
The text has been adapted from Project Syndicate website
Hello, I enjoy reading through your article post. I like to write a little comment to support you.
I would like to thank you for the efforts you’ve put in penning this website. I am hoping to view the same high-grade content by you later on as well. In truth, your creative writing abilities has encouraged me to get my own, personal blog now 😉
When some one searches for his vital thing, so he/she desires to be available that in detail, so that thing is maintained over here.
Hi, I do believe this is a great website. I stumbledupon it
😉 I will return once again since i have bookmarked it.
Money and freedom is the best way to change, may you be rich and continue to help
other people.
Hi there, just became alert to your blog through Google,
and found that it’s truly informative. I’m gonna watch out
for brussels. I will appreciate if you continue
this in future. Numerous people will be benefited from your
writing. Cheers!
My brother suggested I may like this website.
He was once entirely right. This publish actually made
my day. You cann’t consider simply how so much time I had spent for this information! Thank
you!
Greetings from Carolina! I’m bored to death at work so I decided to browse your
site on my iphone during lunch break. I love the knowledge you
present here and can’t wait to take a look when I get home.
I’m surprised at how quick your blog loaded on my
mobile .. I’m not even using WIFI, just 3G ..
Anyhow, wonderful site!
Attractive section of content. I just stumbled upon your site and in accession capital to assert that I acquire in fact enjoyed account your blog posts.
Any way I’ll be subscribing to your augment and even I
achievement you access consistently rapidly.
By undertaking the above, you can bet on any web pqge you like, irrespective of the laws in your nation.
My web-site: Korea Sports Gamble
I quite like reading through a post that can make men and women think.
Also, thank you for allowing for me to comment!
Pretty great post. I just stumbled upon your weblog and
wanted to say that I have really loved surfing around your weblog
posts. After all I’ll be subscribing on your feed and I’m hoping you
write once more soon!
Your style is really unique in comparison to other folks I’ve read stuff
from. Thanks for posting when you have the opportunity, Guess I’ll just bookmark this
page.
I really like it when folks get together and share ideas.
Great website, keep it up!
No matter if some one searches for his necessary thing, so
he/she needs to be available that in detail, so that thing is maintained over here.
After going over a handful of the articles on your web page, I really appreciate your way of blogging. I saved it to my bookmark site list and will be checking back soon. Take a look at my web site as well and let me know your opinion.
I like the valuable information you provide in your articles.
I will bookmark your weblog and check again here regularly.
I am quite sure I’ll learn plenty of new stuff right here!
Good luck for the next!
Aw, this was a very nice post. Finding the time and actual effort to make a superb article… but what
can I say… I procrastinate a whole lot and don’t manage to
get nearly anything done.
Thanks to my father who informed me on the topic of this web
site, this website is genuinely awesome.
You can verify in advance how the payout performs by visiting the game’s rules section.
May I simply just say what a comfort to uncover someone that
actually knows what they are talking about on the net.
You certainly realize how to bring a problem to light and make
it important. More and more people must read this and understand this side of your
story. It’s surprising you aren’t more popular since
you surely have the gift.
My brother recommended I might like this blog.
He was totally right. This post truly made my day.
You can not imagine just how much time I had spent for
this information! Thanks!
Hi there! I know this is somewhat off topic but I was wondering which blog platform are you using for this website?
I’m getting tired of WordPress because I’ve had issues with hackers
and I’m looking at alternatives for another platform.
I would be great if you could point me in the direction of a good platform.
It’s very straightforward to find out any matter on web as compared to textbooks, as I found this paragraph at
this web site.
First off I would like to say awesome blog! I had a quick question in which I’d like to ask if
you don’t mind. I was interested to find out how you center yourself and clear your thoughts prior to writing.
I have had difficulty clearing my thoughts in getting my ideas out there.
I truly do enjoy writing however it just seems like the first 10 to
15 minutes are usually wasted just trying to figure
out how to begin. Any ideas or tips? Cheers!
I love your blog.. very nice colors & theme. Did you make this website yourself or did you hire someone to
do it for you? Plz respond as I’m looking to construct my
own blog and would like to know where u got this from.
thanks a lot
Greetings from Colorado! I’m bored to death at work so
I decided to check out your site on my iphone during lunch break.
I enjoy the knowledge you provide here and can’t wait to take a look when I get home.
I’m shocked at how fast your blog loaded on my mobile ..
I’m not even using WIFI, just 3G .. Anyhow,
wonderful site!
I really like your blog.. very nice colors & theme. Did you
create this website yourself or did you hire someone to do it
for you? Plz respond as I’m looking to design my own blog and
would like to know where u got this from.
appreciate it
Its such as you learn my mind! You seem to know a lot about
this, like you wrote the e book in it or something.
I believe that you could do with a few p.c. to drive the message house a little bit, but instead of
that, that is excellent blog. A fantastic read.
I will definitely be back.
Hi, the whole thing is going fine here and ofcourse
every one is sharing facts, that’s in fact excellent, keep up writing.
Appreciating the dedication you put into your blog and in depth information you provide.
It’s awesome to come across a blog every once in a while that
isn’t the same unwanted rehashed material. Excellent read!
I’ve bookmarked your site and I’m including your RSS feeds
to my Google account.
Write more, thats all I have to say. Literally, it seems as though you relied on the video to make your point.
You obviously know what youre talking about, why waste your intelligence on just posting videos to your site when you could
be giving us something informative to read?
Hey I know this is off topic but I was wondering
if you knew of any widgets I could add to my blog that
automatically tweet my newest twitter updates.
I’ve been looking for a plug-in like this for quite some time
and was hoping maybe you would have some experience with something like this.
Please let me know if you run into anything. I truly enjoy reading your
blog and I look forward to your new updates.
I’m not sure where you are getting your information, but great topic.
I needs to spend some time learning more or understanding more.
Thanks for fantastic info I was looking for this information for my mission.
You could certainly see your expertise in the article you write.
The world hopes for more passionate writers such as you who are not afraid to say how they believe.
At all times follow your heart.
What’s up friends, how is the whole thing, and what you would like to say concerning this paragraph, in my
view its in fact remarkable for me.
You really make it seem so easy together with your presentation but I find this matter to be really something that I feel
I might by no means understand. It seems too complex
and very large for me. I am looking ahead in your next publish, I will attempt to get the
hold of it!
Why viewers still use to read news papers when in this technological globe all is existing on net?
If you would like to obtain much from this post then you
have to apply these techniques to your won blog.
It’s fantastic that you are getting thoughts from this
paragraph as well as from our discussion made at this
time.
My spouse and I absolutely love your blog and find many of
your post’s to be just what I’m looking for. Does one offer guest
writers to write content for you? I wouldn’t mind publishing a post or elaborating on a number of the subjects you write in relation to here.
Again, awesome blog!
Hello! I’m at work surfing around your blog from my new iphone 3gs!
Just wanted to say I love reading through your blog
and look forward to all your posts! Carry on the outstanding work!
My family members always say that I am killing my time here at net,
but I know I am getting familiarity daily by reading thes good posts.
Greate pieces. Keep posting such kind of information on your site.
Im really impressed by it.
Hey there, You’ve done a fantastic job. I will certainly digg it
and individually recommend to my friends. I am sure they will
be benefited from this site.
I’ve been surfing on-line greater than three hours today, but I never found any interesting article
like yours. It is pretty price sufficient for me.
In my view, if all website owners and bloggers made excellent
content material as you did, the web will be a lot more helpful than ever before.
I read this post completely regarding the difference of most up-to-date and earlier technologies, it’s awesome article.
Hi, Neat post. There’s an issue along with your site in web explorer, may test this?
IE nonetheless is the marketplace leader and a
large element of people will omit your fantastic writing because of this problem.
Hello! I’ve been reading your site for a long time now and finally got the courage to go ahead and give you a shout out from Kingwood Texas!
Just wanted to mention keep up the great job!
I enjoy what you guys are up too. Such clever work and coverage!
Keep up the superb works guys I’ve you guys to blogroll.
Hi there, i read your blog from time to time and i own a similar one and i was just curious if you get a lot of spam comments?
If so how do you prevent it, any plugin or anything you can advise?
I get so much lately it’s driving me crazy so any support is very much appreciated.
Remarkable issues here. I am very happy to peer your post.
Thank you so much and I’m looking ahead to contact you.
Will you please drop me a e-mail?
If some one wishes to be updated with latest technologies after that he must be
pay a visit this web site and be up to date everyday.
Appreciate the recommendation. Let me try it out.
Way cool! Some extremely valid points! I appreciate you writing this write-up plus
the rest of the site is also really good.
If some one wishes expert view on the topic of running a blog afterward i advise him/her to pay a quick visit this web site, Keep up
the pleasant work.
Good day! This is my first visit to your blog!
We are a team of volunteers and starting a new project in a community
in the same niche. Your blog provided us useful information to work
on. You have done a outstanding job!
It’s not my first time to pay a quick visit this web page, i am browsing this web site
dailly and obtain pleasant data from here everyday.
Great beat ! I wish to apprentice while you amend your site, how can i subscribe for
a blog website? The account helped me a acceptable
deal. I had been a little bit acquainted of this your broadcast offered
bright clear concept
Greetings from Florida! I’m bored to tears at work so I
decided to check out your blog on my iphone during lunch break.
I love the information you present here and can’t wait to take
a look when I get home. I’m surprised at how quick your blog loaded on my mobile ..
I’m not even using WIFI, just 3G .. Anyhow, good site!
Very nice write-up. I absolutely appreciate this website.
Keep it up!