Tyler Cowen is Professor of Economics at George Mason University in Virginia. He runs the blog Marginal Revolution and is considered a liberal economist with a wide range of interests.
The corona pandemic has led to major stimulus packages being launched everywhere, including in the USA. Democratic presidential candidate Joe Biden is planning a gigantic spending program. Would we be facing an era of spending with election winner Biden?
We are facing such an era, but also with an election winner Donald Trump. That is completely independent of it. Trump loves to borrow money and spend it.
Does that mean that the government in the USA, but also the leaderships in other countries, will have more influence over the economy?
I do not think so. Rather, it creates more chaos. It is true that in many countries large amounts of government money are being used to address problems. But, whether you like it or not, governments rarely try to really take control. The approach follows a certain pattern: do as much as you can, as quickly as possible. But don’t worry about management. This is particularly evident in the US: very little real management is visible in the fight against this crisis. Neither in health care nor in business.
What does that lead to?
We will have higher expenses and of course more taxes. The usual. But from my point of view there is no permanent change towards more state control.
Why are you so sure about that?
In America the state simply has no tradition as a manager. In addition, the US central bank, the Fed, plays the most important role when things have to go quickly. You don’t need Congress, that is, Parliament, for it, while it always has to approve an economic stimulus package. The Fed, on the other hand, can pump money into the economy very quickly, and that’s often a good thing. Whether it is healthy in the long run is another question.
Will we ever get out of this central bank funding?
In any case, it will take a long time to process the consequences of this pandemic. I am very optimistic that we will have a vaccine soon. But it will take a long time to even supply a significant proportion of Americans with it. Besides, we don’t know how good this vaccination will be. So it will take time before people feel safer again. We speak of years rather than months. And then all states will have higher debts, taxes will rise. Getting out of there can take a long time. The 2008 crisis was smaller in comparison. But it took the job market a decade to recover.
What will this crisis mean for the labor markets?
I fear that many jobs in the service sector will be lost forever. In cinemas or restaurants. And it will not be easy to accommodate these people because they are usually not well trained. This is a problem for America because our economy is more dependent on services than Germany, for example.
So what should a future US administration do?
The main problem is in the education sector, we have many poorly educated people. Of course you can retrain people, but such programs are not doing very well. It would also be a good idea to let more immigrants into the country to start their own businesses. Have new ideas. Immigrants have always created new jobs for us, including in the area of small and medium-sized companies. But here I am counting on the opposite, even under President Biden.
“I cannot see that the market economy principles are disturbed. It’s amazing how flexibly the goods markets reacted to this tremendous shock from the pandemic “
That sounds pretty dark.
I do believe that we will solve these problems in the next 20 years. We will make great medical advances in the wake of this pandemic, perhaps technological leaps as well. But that’s a long time. Think of the Spanish group of 1918 and 1919. Back then, people were used to harsh living conditions. Today it is much harder to adapt to new circumstances.
What should be done acutely against the consequences of the pandemic?
As for the US, I would make more money available to small businesses as quickly as possible. And more should be tested. That would be wise. But of course it’s all a political game and the two parties couldn’t come to an agreement. The Democrats wanted companies to be bailed out by the state. The Republicans refused. I find my way around, but they should have gotten into a deal anyway. There will be a deal in the end, but it may come too late. A month or two plays a big role right now.
What does all this mean for the behavior of companies?
One thing is clear: good relationships with the respective government in Washington, Berlin, Brussels or wherever are more important than ever if you want to get hold of money. And that is not good. But I cannot see that the principles of the market economy are disrupted. It’s amazing how flexibly the goods markets reacted to this tremendous shock caused by the pandemic. You can still order anything online, the food supply was never endangered, and the supply chains have also proven to be very robust. For me it was a triumph of the market.
“Science and the private sector will drive the fight against climate change – with a little government help”
So the market is still working perfectly?
For some things you certainly need support from the state. Solar energy, for example, cannot be implemented without governments. But of course the market forces are intact.
Renewable energies are an interesting topic: Liberal economists have always doubted whether the state can find the right technologies because it simply does not have the necessary knowledge. Why should it be any different with green energies?
That is true in principle, and of course nothing speaks in favor of a planned economy. But there are cases when it is clear what is needed. In the United States during World War II, there was no question that we needed the atomic bomb. So the state launched the Manhattan Project and we built it. We sent people to the moon, even if it was expensive. Now we are faced with the problem of climate change. And of course there are various alternatives to our current energy supply. Maybe solar power isn’t the best. But it’s definitely better than what we have now. And it has become much cheaper very quickly. The same applies to batteries.
Joe Biden has announced a major “green” stimulus program for the USA. What do you make of it?
This is only talk for the democratic voters. He will have very little room for maneuver. I don’t think Biden would do more than Donald Trump. Science and the private sector will drive the fight against climate change – with a little government help. And that’s not the worst.
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