World stares at debt doom loop, more inequity
WASHINGTON: The world economy will be exiting the pandemic weighed down by much bigger debts and increased inequality that could hobble growth in the longer term.
That was one of the memes making the rounds at the annual meeting of the American Economic Association.
While global growth is widely expected to strengthen as more people are vaccinated, top economists at the virtual three-day conference focused on the glaring inequities that the pandemic had exposed and the fall-out from the efforts to cope with and combat Covid-19.
“We have met every crisis in the recent past with yet more aggressive central bank accommodation and yet more leverage, both public as well as private,” said former Reserve Bank of India governor Raghuram Rajan. “The real question is: Is this a doom loop? Does it keep going until it is forced to stop?”
Global debt rose by more than $15 trillion last year to a record $277 trillion, equivalent to 365% of world output, according to the Institute of International Finance (IIF). Debt from all sectors—ranging from household to government to corporate bonds—surged, based on data from the Washington-based IIF, which is comprised of the world’s leading financial institutions.
Inequality has also increased —both within and across countries—as the pandemic has hit the poor particularly hard. In the US, Blacks and Hispanics have suffered proportionately more fatalities than whites, while lowwage workers in such industries as leisure and hospitality have borne the brunt of the layoffs as those better off continue to work from home.
“The pandemic has exposed the depth of inequality and in many ways has exacerbated those inequalities,” said Joseph Stiglitz, a Nobel Prize-winning economist.
While rich countries like the US have cushioned the blow to their citizens with massive amounts of government aid, poorer nations have been unable to do that. Stiglitz, a Columbia University professor, said the world’s 46 least developed nations accounted for just 0.002% of the $12.7 trillion in public stimulus spending laid out in the fight against the virus.
“In many ways we could see after this pandemic an unwinding of decades of progress toward reducing global inequality,” certainly for the poorest nations, said Harvard University professor and former International Monetary Fund chief economist Kenneth Rogoff.
Not everything coming out of the pandemic will be bad news, of course. The speed at which vaccines were developed and the rapid growth of telemedicine are developments worth celebrating.