Our economic system is taking new form. In many respects, we are heading down a similar road to what we saw in the 1980s: a revolt against then-orthodox Keynesian policies. Only this time it is a revolt against the Austrian idea of political economy, tied to the writings of Friedrich von Hayek. Notions of trickle-down wealth, free-trade arrangements, and low-tax jurisdictions are being put to rest. Economic historians may blame the coronavirus. Still, we probably need this shift to prevent capitalism from eating itself.
Added Insight. The post financial-crisis economy saw periods of weak growth and an attendant backlash from voters. Meanwhile, the rich—symbolized by the tech giants of Silicon Valley—got richer, using their new-found gains to stack the deck in their favor. Somehow the tech giants still like to cling to the notion that they are the vanguard of the global economy, despite the fact that they have been steamrolling competitors. Strategic acquisitions are a convenient way to safeguard monopolies.
Central banks have become powerless. The idea of using the ebb-and-flow of money supply to calibrate economic activity seems quaint nowadays. The Federal Reserve and others have been reduced to printing money to cover government spending. Those outlays continue to be enormous. Policy debates are dominated with arguments over grants, concessions, and subsidies. Suffice it to say that the American Rescue Act passed in March was right-sized at $1.9 trillion or roughly the scope of Italy’s pre-pandemic annual output. Other nations have their own version of government largess.
Why We Care. More government means that public policy again becomes part of the corporate-strategy dashboard. We are seeing—and will continue to see—higher taxes and more regulation, not all of which should be tarred and feathered as government overreach. Widespread demonstrations over wealth disparity should be enough to convince policy skeptics that something was deeply wrong.
From an industrial point of view, the worst is still unfolding. Retail equilibrium is widely distorted. Experts say that supply chains need another six months to stabilize, but that seems aspirational. The near-collapse in the US civil aviation business in early August was not so much about weather, as argued by the major carriers, but rather lack of airline personnel, including pilots. And we really do not know about the state of advanced education, because research-driven universities do not trade as public companies.
Bottom Line. A mixed-model economy, which favors fiscal over monetary stimulus, is uncomfortable. We have long known something else, at least in spirit. We may not have a choice but to forge new directions between government and business. Views on self-interest, er, views on self-preservation are fully-aligned right now.
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