If the current growth projections for this year do come true, we are now in the middle of the fastest economic recovery that we have ever seen following a recession. The economic data as such therefore give cause for optimism and for weeks now, this has been reflected in exuberant reports in the media and visible relief among policymakers.
These economic data have so much impact due to the large number of publications on this subject issued by renowned institutions, including the International Monetary Fund (IMF), the Organisation for Economic Cooperation and Development (OECD) and the World Bank (WB). The growth projections presented in the IMF, OECD and WB reports are often used as the basis for other economic projections and serve as a guideline for policy decisions.
And that is the crux of the matter: what these institutions emphasize to a large extent determines public opinion and policy direction.
When you start reading these reports, it becomes immediately obvious what it is all about: economic growth projections are at the heart of every analysis. And the growth data are indeed rosy: they exceed all previous expectations.
But does this also constitute a successful reset of our economic system? Because that was what these same institutions passionately advocated when the COVID crisis first emerged: our old economic system was no longer fit for purpose and the crisis was the perfect opportunity to finally tackle this by means of a system reform aimed at enhancing sustainability, creating more resilience (i.e. less debt) and reducing inequality.
A quick glance at the reports teaches us that there has been no reset whatsoever. Admittedly, unprecedented decisive action by governments and central banks has helped the economy to bounce back quickly, but this is a recovery funded by borrowed money. The hugely inflated government debt has been used mainly to boost consumption in the short term. The money has not been spent on green and inclusive long-term projects. No enhanced sustainability or more resilience, but rather the opposite.
Inequality, too, has only increased. Many developing countries have not been able to spend the same vast amounts of money to cushion the worst blows dealt by the crisis. In addition, the return to normal in those countries is taking longer because they do not have the same supply of vaccines as rich countries. But in the richer countries, too, we have seen the gap between poor and rich get wider, because the social restrictions have had a bigger impact on the working lives of people with lower educations, while those with better educations tended to manage perfectly well to work from home using their laptops.
Moreover, the interventions by central banks have mainly worked in favour of asset owners: people with equity portfolios or houses saw the value of their assets increase, while the emergency support provided to those with only labour income was not always high enough to fully offset their losses. And to top things off, the inequality between generations has increased: the younger generation has fallen behind in its education because schools were closed. And they are also the ones who will need to pay back that much inflated government debt in the future.
So the completely failed reset is counterbalanced only by higher-than-expected short-term economic growth, which we can hardly call a rosy overall situation. The amount of emphasis that institutions such as the IMF keep placing on growth figures is therefore quite absurd. We have known for ages that the unhealthy focus on economic growth results in decisions that do not always promote the well-being of mankind and society. Economic growth stopped being the holy grail ages ago. And that is exactly what causes these calls for a reset of the economic system.
What is lacking in the IMF, OECD, and WB reports, are data about the world population's broader well-being. If those data were integrated in those reports, that would demonstrate the importance of broadly defined well-being. And those data on well-being would need to be the core of the analyses, not just a ‘fun’ tidbit provided in addition to the growth figures.
IMF, OECD and WB: the first step towards the reset that you, too, are so eager to accomplish, is to reset the data.
This is a translation of Joeri de Wilde's column on , published June 22nd, 2021.
Also read Joeri's previous column ‘Financial institutions’ fake moustaches’.