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The economic impact of the coronavirus pandemic should change governments’ attitudes toward public spending and debt, says Laurence Boone, chief economist at the Organization for Economic Cooperation and Development (OECD), who warned that the new measures of austerity could cause riots. according to Agerpres.
In an interview with the Financial Times, Laurence Boone said that public opinion would rebel against new austerity measures or tax increases if governments tried to quickly bring deficits and public debt to pre-pandemic levels.
Governments and central banks of developed countries have introduced unprecedented incentives to protect economies from the impact of the pandemic. After the pandemic, “people will ask where all this money came from,” Laurence Boone said, adding that governments will have a hard time claiming they can’t spend money to respond to climate change or to compensate those who have had it. suffer as a result of the reforms.
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“If we think there is resentment among the public that the quality of jobs was getting worse before the pandemic, it would be much worse after the pandemic,” said Laurence Boone.
The OECD chief economist called on states to continue using fiscal policy – higher public spending and lower taxes – to help economies recover and reduce unemployment as soon as the impact of the pandemic subsides, adding that there are some lessons to be learned from the financial crisis of a decade ago.
“The mistake we made was not a lack of incentives during 2009 … the mistake was made later in 2010, 2011 and beyond, and this is true for both sides of the Atlantic. The first lesson is to make sure that governments do not resort to to austerity in the first two years after a GDP collapse, “said Laurence Boone.
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The Organization for Economic Cooperation and Development has been a proponent of austerity policies after the financial crises, but now Laurence Boone says states should forgo short-term public deficit and debt targets and adopt sustainability targets for long term. which also means accepting that the burden of public debt will continue to increase until the economy returns to normal.
Countries “should move away from thinking that there are fiscal rules that apply in all situations to get back to a certain goal,” said Laurence Boone.
However, this would represent a radical change in the case of Europe, since the European Union treaties oblige member states to try to limit public debt to 60% of GDP.
The OECD chief economist also said that governments should take on the role of stabilizing the economy in times of recovery, while central banks would have a supporting role, so advanced economies should fundamentally rethink. the relationship between fiscal policy and monetary policy. Laurence Boone believes that monetary policy now has less room for maneuver than in 2010, while fiscal policy is in a better position to solve current global problems.
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