Why Bother?

Just in case it wasn’t clear enough, the OECD on Monday reminded the world that “this is no ordinary recovery.”

The good news is, global growth will be considerably more robust in 2021 than previously forecast, according to the Paris-based organization. The global economy will expand 5.8% this year, far better than the 4.2% forecast from the OECD’s December projection.

The figure (below) shows you various trajectories associated with three scenarios, a baseline (black), an optimistic take (green) and a downside case (red). You can also see how they compare to the 2019 (i.e., pre-pandemic) outlook and the December projection.

The updated, sunnier outlook is predicated on successful vaccination efforts across the developed world and what the group described as “massive” fiscal stimulus in the US.

In 2022, global growth should be 4.4%, the OECD said, before noting that despite the rebound, “global income will still be some $3 trillion less” by the end of next year versus pre-crisis estimates. That figure, the group gently noted, “is about the size of the entire French economy.”

For what it’s worth (which, frankly, is very little), the figure (below) shows the updated projections for advanced economies.

To be completely honest, these projections (and similar forecasts from the IMF and World Bank) are almost entirely useless. That’s not an attempt to be derisive, it’s just to say that in reality, you’d have a hard enough time accurately predicting economic trends for a small town. Trying to predict (to the decimal) growth outcomes for every economy on planet Earth out one, two and three years is an exercise in abject futility.

Everybody knows that, of course, which raises one obvious question: Why bother?

Well, I’d argue that although the time and effort spent compiling the forecasts is almost a total waste if we measure “worthwhile” by our capacity to accurately predict economic outcomes, what’s gleaned along the way in terms of both secondary quantitative assessments (i.e., projections that have a much greater chance of being a semblance of accurate, like forecasts related to trends in inequality) and, perhaps more importantly, qualitative appraisals, is often very valuable.

Although the latest “blog” post by OECD Chief Economist Laurence Boone is chock-full of boilerplate language which, while well-intentioned, reads like cookie-cutter copy from some generic lament about the lingering effects of a public health crisis, there are some notables.

“The global economy remains below its pre-pandemic growth path and in too many OECD countries living standards by the end of 2022 will not be back to the level expected before the pandemic,” she wrote, adding that,

It is very disturbing that not enough vaccines are reaching emerging and low-income economies. This is exposing these economies to a fundamental threat because they have less policy capacity to support activity than advanced economies. A renewed virus-driven weakening of growth would be harder to cushion, resulting in further increases in acute poverty and potentially sovereign funding issues if financial markets were to become concerned. This is all the more troubling because, notwithstanding the impact on lives and livelihoods, the global economic and social cost of maintaining closed borders dwarfs the costs of making vaccines, tests and health supplies more widely available to these countries.

That assessment isn’t going to win any awards for profundity, but paradoxically, it is profound. The conjuncture described by Boone in that short paragraph is the kind of dynamic that pushes the world further down the road to a kind of dystopian future, where emerging markets backslide into frontier status, frontier economies descend into a pseudo-chaotic state and the developed world is compelled to wall itself off, figuratively or, perhaps, literally.

As much as I don’t like saying this, the rest of Boone’s editorial reads like a wish list — everyone with any common sense knows what she’s saying is true, but when it’s spelled out and presented all at once, it comes across as one giant pipe dream. Consider the paragraph below, for example,

As countries transition towards better prospects it would be dangerous to believe that governments are already doing enough to propel growth to a higher and better path, especially keeping in mind the objective of decarbonization. Flexible, state-contingent measures for people and firms are essential to anchor expectations that fiscal support will be maintained and targeted as long as economies are not back to, or close to, full employment. In particular, shoring up the balance sheets of viable small firms through deferred taxes or grants is crucial. Moreover, it is essential that sufficient public investment is made available for the digital and green transitions and that the funds are swiftly and efficiently spent. This would help to encourage private investment in these areas. Finally, confidence would be bolstered by signaling that a clear, effective and sustainable fiscal framework is to be put in place and medium-term fiscal plans are starting to be developed, based on reviews of public spending to ensure priorities match ambitions and citizens’ needs, and reassessments of taxation to ensure a fair, efficient and progressive tax system.

All of that is unequivocally true, but when one takes a look across the globe with a mind towards being honest about the capacity of elected officials in advanced economies to exercise the kind of prudence and foresight necessary to make Boone’s dream a reality, it’s difficult to come away optimistic.

At the risk of overgeneralizing, competent, benevolent leadership is mostly confined to very small economies that don’t matter in the grand scheme of things.

The more disaffected voters become in the developed world, the more prone they’ll be to embracing the kind of xenophobia and inward-looking politics that could accelerate the global unravelling witnessed over the past half-decade.