In search of the happy twenties | Economy



A full page headline: The world defeats the virus. Hugs without fear and masks to the trunk. A long simultaneous applause in the squares in recognition of the work of the toilets and in memory of the fallen. Fireworks in Paris, Tokyo, New York, Buenos Aires, Rabat and Sydney. And an economic resurrection even more visceral than the fall. It has been a long time since the planet entered a new decade with such a widespread sense of uncertainty. The scene of the fiction described above, of radical but not crazy optimism, is one of those that is on the table at a time when everything seems possible. For the better, if the vaccine reduces the pandemic to a horrible nightmare of the past and the technological revolution gains traction. And for worse, if it does not and the system goes into the darkness of a depression between bankruptcies, delinquencies and debt overdoses.

Research services and international organizations have repeatedly crashed into reality when making predictions about the economic effects of the pandemic. Even in the short term. Therefore, putting the high beams to venture what is coming is something like jumping into the void having a vague idea of ​​what is below. The great traumas of the twentieth century provide promising clues. The First World War was followed by the happy twenties – which ended with the resounding collapse of the Great Depression – and the Second, a new golden age of capitalism and the creation of modern welfare states. This pattern, of long periods of post-crisis bonanza, has been partially repeated this century: the US chained ten years of uninterrupted growth after the Great Recession and its stock markets are at its highest, but its European partner took much longer to recover. In the middle of the hurricane, with the pandemic still to be overcome, it is difficult to see the clear horizon. The question is, is there reason to think that the post-covid world will bring another happy 1920s like those that in the last century succeeded the smoking ruins of World War I and the millions of deaths from the so-called Spanish flu?

Lorenzo Codogno, an economist and former Italian Treasury secretary, believes that the key lies in the quality of spending and reforms. “Without a doubt, it is possible to see a decade of economic recovery. After pandemic episodes or shocking events in the past, there has always been a recovery period. It will depend on the quality of the investment. How the debt is used, which will be paid by future generations. If spending doesn’t improve productivity and potential growth, it will leave only a few years of above-average growth and then all the problems will suddenly resurface, ”he warns.

Every future threat seems to have its positive side. Debt has skyrocketed, but its cost has never been so low thanks to central bank action. Climate change brings increasingly adverse weather phenomena, but it has driven the development of a new economy driven by renewable energies and progress such as the electric car. Each advance also has its downside: European funds provide a new lever to unblock the recovery, but it remains to be seen whether they will be used as a patch to contain the leaks or for a real transformation. Robotization will increase productivity, but the use of machines to do the work that people now do will generate unemployment. Electronic commerce is growing strongly, but its aggressive pricing and immediate delivery policies are leaving a growing string of corpses in small businesses. And energy prices remain low, but for how long is unknown.

A temporary improvement?

Ángel Talavera, chief economist for Europe at Oxford Economics, does not believe that we are at the beginning of a particularly buoyant decade for the economy. “I am of the opinion that once the disease has disappeared we will at some point see a great boost in demand due to the impounded resources available, but I think it will be temporary. I don’t see mechanisms by which this is going to push a whole decade of growth. There are still structural factors, such as demographics or what appears to be a secular trend of stagnant productivity, which makes it more likely that growth in advanced economies will remain relatively modest, ”he predicts.

The departure of Donald Trump from the White House is called to significantly reduce geopolitical pressures on the economy. According to a report by Alex Mackle, also of Oxford Economics, the trade wars with China have cost the US 245,000 jobs. Along with the end of extreme protectionism, Washington’s return to the Paris Agreement against climate change and its return to the Organization World Health Organization speak of a return of multilateralism.

“The baseline scenario is one of geopolitical stability,” explains Nicolas Véron, a researcher at Bruegel and the Peterson Institute. “Trump has been a parenthesis and a more rational government comes to the US. There is an authoritarian but also quite rational Executive in China, with aggressive diplomacy and repression in domestic affairs, but moderate in foreign affairs, as proof that they did not take advantage of the extraordinary Weakness of the US at the end of the Trump era to embark on adventures such as invading Taiwan. On the contrary, they signed a trade agreement with the EU ”, he explains.

The Chinese economy is holding the rate better than expected. Joe Biden arrives with a new stimulus package under his arm. And the EU goes into debt jointly for the first time. Will that be enough to fuel a decade of post-virus growth? “Ten years is a long time, and the baseline scenario is optimistic, but with the virus mutating and the possibility of new pandemics, it has no more than 50% probability,” admits Véron.

Faster recovery

The Arcano investment bank is perhaps the least ominous about the future of the economy. “In 1919, in the midst of the Spanish pandemic, people thought that the future was going to be very gloomy due to the tragedy that had been experienced and what came was the 1920s,” recalls his report The post COVID world. Looks are deceiving. “In the Great Recession, many developed economies took more than five years to regain previous levels, while now it is expected to occur in a maximum of approximately two or three years,” adds the text. Its chief economist, Ignacio de la Torre, sees hopeful signs. “This is the first time in my life that I have seen a recession where household income goes up,” he says. “This saving will end up in consumption and it has not been spent out of fear,” he adds.

De la Torre believes that with the vaccination of those over 80 years of age, social alarm due to the high death toll will diminish. And the immunization of those over 60 and 70 years old will reduce the occupation of ICUs, which will favor the recovery of tourism in summer. “Another important derivative will be the technological revolution. Mass production systems began in the 1920s with that of the Ford T. Also electrification and sewerage. In the hard years of a crisis, creativity is most stimulated, as we have seen with vaccines based on the messenger RNA molecule. The key is whether these innovations help productivity, “he says.

Personalities such as the former Governor of the Bank of England, Mervyn King, predict that a debt crisis is looming. De la Torre does not share this fear: he argues that major crises are caused by private and non-public debt, and estimates that the outstanding accounts will be wiped out thanks to the combination of economic growth – as happened after the Second World War – and a political of central banks more lenient with inflation. Nicolas Véron agrees. “I don’t see it now as a great risk. There is more risk in not getting into debt, as the IMF says, or in not using it in quality investments, as Mario Draghi said ”.

Time will give and take reasons. Even the French firm L’Oréal has its own take on the coming decade. Of course, well aligned with his business interests: he glimpses a crazy twenties where the desire to socialize again will bring a renewed interest in elegance in clothing and a rebound in the use of makeup. Governments and citizens are keeping their fingers crossed that the recovery is not just cosmetic.


elpais.com