Politicians prefer the easy but misguided option of using monetary policy and tax tweaks to fuel growth
email rounding up the latestOne of John Maynard Keynes’s best-known quotes is also the most misused. His “in the long run we are all dead” quip has been interpreted as a call to focus policy efforts on correcting short-term swings in economic activity. This is perhaps manifested in James Carville’s slogan for Bill Clinton’s 1992 campaign: “It’s the economy, stupid.” That voter prosperity today outweighs future economic considerations is indeed a flaw of liberal democracies everywhere.
The notion that Keynesian economics equated largely to near-term demand management was in part a convenience. Structural reforms are far harder than interest rate or tax tweaks. As they involve boosting the productive, or “supply side”, capacity of an economy — including its labour, capital, technology and ideas — they often enact a cost on today’s voters, for long-term gain. Those gains can be decades away, such as the benefits of investing in skills, education and research and development.
Take planning reform. It is essential to spur the development of railways, homes and electricity pylons, but it irks homeowners. Outdated tax systems stifle growth and contribute to inequality, but changes involve upsetting one group to benefit another. Ageing populations pile pressure on the state, yet nationwide protests greeted Emmanuel Macron’s efforts to raise France’s retirement age.citizens want action to tackle climate change, but many do not want to pay for it.
Advanced economies have already opened to trade, reformed banking sectors and privatised finance, the groundwork for growth since the 1970s. Future supply-side measures may be more complex or involve more disruption for voters: redesigning existing legislation, allocating resources more efficiently and building things.
The upshot is an erosion in underlying growth. The IMF recently forecast medium-term global growth to be at its weakest
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