Take advantage of those who are still on vacation to rest and recharge their batteries, because when they return they will find themselves in a complex economic situation. July showed worrying data on employment, in the United States they are reluctant to talk about a recession and, in order not to alarm, they describe it as “technical”, the central banks have started an upward rally in interest rates and inflation seems runaway.
The situation does not invite calm. This scenario is amortizing the optimism with which we came out of the pandemic, which was based on celebrating that we had finally learned from past crises and managed to understand that a structural change in the foundations of economic development was necessary if we wanted to build a habitable world and human. The Next Generations had reinstated Keynesianism and represented a commitment to believe in a European federalism that would break the North-South dichotomy of exiting the Great Recession. Address inequalities, climate change, the digital divide and promote a greener and more humane economy. That was the challenge and it should continue to be our main concern.
But it seems that the situation is eating that roadmap. Articulating economic measures based on quickly putting some indicators in order can have dire consequences in the medium and long term and could cast doubt on the structural change that some of us yearn for. The price spike stems from the post-pandemic collapse in global value chains, the war in Ukraine, geopolitical tensions, and the accelerating push to shift energy fundamentals. If the proposal to curb inflation is reduced to raising rates and reducing public spending, it is because we are not understanding the current scenario very well and we are going back to the crisis of 1973 that Gary Gerstle masterfully portrays in The rise and fall of neoliberal order and that little (as much as there are those who interestedly look for parallels) resembles the current one.
The increase in the price of money is going to make borrowing more expensive, and that is going to retract consumption and investment. It can also put pressure on the banking system again, and it must be remembered that mortgage delinquencies are concentrated in loans that financed more than 80% of the value of the home and in Spain they account for 15% of the debts of the clients with these banks; the latest report from the European Bank Lending Economic Forecast already warns of a notable increase in non-performing loans.
We run the risk that what is apparently urgent takes precedence over what is truly important. The planet demands another structuring of the model, and perhaps we are already late in that. It is necessary for economic science to innovate, be daring and creative, courageous, and not lose sight of the direction we had begun to take. If, faced with the challenges of the 21st century, we throw in the tools of the 20th or 19th century, it is that we have advanced less than we thought.
