Economic Surplus: Michaelmas 2021/22 Week 6
Economic Surplus by The Marshall Society
15 November 2021
"Underlying most arguments against free markets is a lack of belief in freedom itself." ― Milton Friedman
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Ben Bernanke Event - 6PM, 17th November 2021
The Marshall Society is proud to host Dr. Ben Bernanke. Between 2006 and 2014, Dr. Bernanke was the Chair of the Federal Reserve. Before that, he was the Chair of the Council of Economic Advisors for President Bush as well as the Chair of Princeton's department of economics. Most of his academic research focuses on macroeconomics, especially in relation to the economic history of the Great Depression and the conduct of monetary policy.
The interview with Dr. Bernanke will take place online on November 17 at 6 pm, with the conversation being screened live in the Lightfoot Room at St. John’s College Divinity School. It will not be possible for attendees to join the online conversation directly. The event is open to Marshall members only.
If you are interested in becoming a member, please go to: https://marshallsociety.com/join-us/
Marshall's Thoughts - A New Economic Orthodoxy?
This week’s Marshall’s Thoughts are written by Alvaro Martin.
Since more than a year ago, we have been listening to and reading proposals from the main multilateral organisations and developed countries, which years ago we would have deemed appropriate only for certain marginal schools of economic thought. For example, a 15% minimum global corporate tax rate, tariffs to combat climate change, taxes to international financial transactions or historic fiscal stimulus programmes. All these proposals have been validated by institutions including the International Monetary Fund, the OECD or the European Commission, and have represented the mainstream political and economic discourse over the last year and a half.
The historic pendulum of economic thought tendencies is in action once again. Throughout the history of economic thought, ideas that previously seemed marginal were able to become orthodox due to the impact of political, military, or social shocks. Full-paced globalisation and hegemony of free-market capitalism followed the fall of the Berlin Wall and the collapse of the USSR, with economic liberalism being the economic orthodoxy up to at the least the Great Recession. Since then, the above-mentioned pendulum has been shifting the mainstream economic discourse towards economic sustainability, reduction of inequalities using strong government intervention or heterodox monetary and fiscal policies (i.e. QE, and Next Generation EU or CARES Act).
We were premonitorily advised that a shift as this would sometimes occur by Karl Polanyi nearly 80 years ago, in 1944., when his book The Great Transformation was published. In it, Polanyi argued that ever-changing orthodoxies in social systems were inevitable. The Austrian philosopher explained that when the market system got unanchored from the broader social system in which it operates, many citizenries’ demands would be unheard and social expectations unmet. These factors would probably lead to rising inequality and social instability, accompanied by greater political polarisation and an erosion of the legitimacy of the prevailing order.
It’s not the first time this has happened in history. After the late stages of the XIXth century’s industrial capitalism, especially after the First World War and the Great Depression, welfare systems gained strength and states expanded their functions. Furthermore, after the Second World War, European countries reached a consensus centred on building social systems characterised by market economies with a strong social component and political systems in which division of powers prevailed.
Many are starting to realise the emergence of a new economic orthodoxy, which began more than ten years ago, after the Great Recession. After 2008, many populist movements surged across the globe, turning their backs to globalisation and financial internationalisation. Even though free-market capitalism and globalisation continued, interventionist discourses were gaining weight in the public sphere. The American Dream was being substituted by desires for greater economic security and stable futures, and the responsibility for it transferred to governments and public institutions, more generally.
However, we hadn’t seen such a tremendous general change in economic discourse until it occurred with the pandemic. When the multiple problems caused by Covid-19 emerged in the West, politicians of different ideologies recognised the necessity of deploying all the strength of states to combat this invisible enemy. Citizens demand greater security, care and protection, both of their health and their economy. The increase of poverty and inequality that the pandemic is leaving behind will probably accelerate and strengthen the consolidation of a more interventionist economic orthodoxy. These new mainstream ideas range from greater public investment and rising tariffs to combat climate change to blocking China’s investments in certain sectors to prevent a further expansion of its political and economic power or a more intense political activism demanding a stronger industrial policy.
Therefore, whether we like it or not, whether we agree with it or not, a new orthodoxy demanding higher taxes, stronger regulation or more protectionism is taking the lead and will soon become mainstream, at least, in the West.
In Case You Missed It:
How an Evergrande Collapse Would Cascade Through China The collapse of Evergrande could suppose a further systemic failure for the Chinese economy. China’s supply chains can pose a risk for the country’s economy in this situation, generating a domino effect leading to failure of many small and medium-size firms.
Billions of banknotes are missing. Why does nobody care? While the use of cash has been declining for years, demand for banknotes is rising in many countries around the world. This article discusses the resurgences of cash and its link to some illicit uses.
Biden’s White House scrambles to tame US soaring inflation This article discusses the evolution of inflation in the US and how this could generate a 180 degrees turn in some of the Biden’s Administration policies, with the American government now focused on tackling inflation, while some of its expansionary fiscal plans are being severely questioned.
Will Single’s Day, China’s Black Friday, be different this year? How could the Chinese government’s crackdown on technological companies and its reinforced focus on common prosperity, following the Chinese Communist Party ideals, negatively affect this year’s Black Friday sales in the country.
That's it from us for now!
The Marshall Society