OECD scraps austerity and dogmas on deficits and central banks: do they know in Brussels (and Rome)?
What Boone, chief economist of the OECD, surprisingly said about deficits, debt and independent central banks: a real "break the lines" towards the priests of austerity (even expansive) in effective permanent service since 2011. Liturri's article
Today is January 4, 2021. But it could be comparable to September 8, 1943.
Given the due proportions, the words of the chief economist of the OECD (Organization for Economic Cooperation and Development based in Paris), Laurence Boone, in a conversation with the Financial Times , have the effect of a real "break the rows ”towards the priests of austerity (according to some, even expansive) in permanent service effective since 2011 (if not precisely since 1997).
According to Boone, the economic crisis from Covid must lead to a change in the attitude of governments towards public spending and debt, and a too rapid return of the deficits to pre-pandemic levels would cause a "popular reaction".
With the crisis, Pandora's box has opened, as “people will ask where all this money comes from” and governments would struggle to explain why those in need are not adequately helped.
The economist's recipe is as follows: higher public spending and lower taxes until the impact of the crisis subsides. We must not repeat the mistake of 2011-2012, when a too steep path of return was imposed after the crisis of 2008/2009, causing a second recession.
We must abandon short-term numerical objectives for public deficits and pursue medium-long term sustainability objectives, accepting an increase in public debt until the return to normal.
Governments must assume the primary role of supporting and stabilizing the economy, leaving central banks in the background in a supporting role. It is time for fiscal policy and monetary policy has almost completely exhausted its effectiveness. Moreover, Boone points out, "it is not healthy to have stabilization policies solely at the expense of monetary policy run by independent, responsible but not democratically elected people."
“Fiscal policy has redistributive effects and is meant to have them, monetary policy has these effects too, but it is not meant to have them. The role of central banks should be of surveillance, so that governments do not support too much demand, causing inflation to rise. For the rest, the function of promoting recovery must be returned by central banks to governments ”. The concept of debt sustainability is also rewritten by Boone: "Debt is sustainable when people trust institutions and policymakers will keep what they promised."
Just a few lines of comment:
- Since these are things repeated to boredom by so many economists especially in recent years, one wonders only: why right now? When it was time to bury Italy, between 2011 and 2012, the OECD thought differently and no one lifted a finger against suicidal austerity. Now perhaps those who need expansive fiscal policy are a nation whose name is seven letters, begins with "F" and ends with "A", borders Germany to the east and is bordered by the Atlantic to the west and which in the past did not hesitate to behead his King?
- The time has come to completely rethink the role of the Central Bank. Shaped by rules for a world that no longer exists, that of the inflation of the 80s and 90s.
- It is good for someone in Italy to reflect on the fact that those destructive rules are only suspended by the EU Commission and their respect constitutes the backbone of the conditions for disbursement of the Recovery Fund . Are we really sure we're getting our heads in such a trap when everyone runs away?
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/mondo/ocse-rottama-austerita-e-dogmi-su-deficit-e-banche-centrali-a-bruxelles-e-a-roma-lo-sanno/ on Mon, 04 Jan 2021 16:47:53 +0000.