Learning from the sages
THE economic fallout from the pandemic provides a sharp reminder of the rich legacy to be drawn from the past. The British economist John Maynard keynes posthumously was named Time magazine person of the year in 1965. He was honoured for providing the blueprint for fiscal expansion as an antidote to slump.
Milton Friedman promoted the value of dishing out ‘helicopter money’ to citizens in bad times. The US Congress and dying Trump White House followed this recipe precisely in the days before Christmas.
I wanted to remind readers of the contribution of two contemporary sages who passed on in the final weeks of 2020 but made a profound contribution to our culture and thinking.
The first is the late Lord Jonathan Sacks, the former chief rabbi and Britain’s greatest public intellectual of the late 20th and early 21st centuries. The other is the Australian born financier Jim Wolfensohn who led the World Bank for two terms and left global economic policymaking in a better place.
In a famous commentary on the biblical story of Joseph, who had interpreted the dreams of the Egyptian ruler Pharaoh, Sacks argued that this was the beginning of the theory of trade cycles: seven fat years followed by seven thin years. The policy response proposed by Joseph was to use the good years to build up resources for the lean times which followed.
In our own time coronavirus has required responses on a scale never before seen in peacetime. Austerity was widely criticised by social campaigners for damaging household incomes after the financial crisis. But resources husbanded during the decade of recovery after the 2008-09 turmoil has provided the room for fiscal largesse in the shape of furlough, breaks on business rates and VAT and enhanced universal credit. SIMILARLY,
the high street banks have played a huge role in supporting enterprises of all sizes during the pandemic. The banking rescue only became relevant because the Bank of England, as the prudential supervisor, mandated the building of counter-cyclical capital during the post-financial crisis decade.
This meant that the banks had reserves to release when Covid-19 struck. The response, for all its flaws in terms of bad loans and fraud, only was possible because the old Testament injunction of conserving resources in better times was followed.
A lacuna in the response to the pandemic has been feeble international co-operation. Here we can learn from the wisdom and energy of the late Jim Wolfensohn. In commercial practice he brought banks from around the globe together to save Chrysler from crashing to earth during the 1980s.
More significantly, as president of the World Bank, he pioneered the idea that unless the official debts of the world’s poorest nations were written off, the benefits of economic development, education and poverty alleviation could never be achieved. He impressed on leaders of the richer countries of the need for action and they responded.
In the current pandemic we have been focused on our own frightening problems. But those of the poorest countries are infinitely worse. Global political leaders and banks need to refocus on the Wolfensohn agenda of removing debt burdens.
That would be in the true giving spirit of this festive season.