Some important economic issues entering 2022

The Covid-19 pandemic, climate change and easy money

The current year saw the spread of Covid-19 vaccines, from their beginnings in the later part of 2020. Yet, while on one side the absence of removal of intellectual property rights (IPRs) meant that the world struggles more than it should have to, in order to reach one most potent vaccine against the Covid pandemic, on the other hand, vaccine inequality still remains a potent tool in the hand of the virus to keep transforming to more aggressive mutations, mainly at the back of seriously low vaccination in Africa, and in global south overall.

Project Syndicate (PS) editors in a recent article ‘PS commentators’ predictions for 2022’ pointed out with regard to issues revolving around covid-19 vaccines as follows: ‘With the covid-19 pandemic heading into its third year, last year’s radically different “new normal” is no longer so new. The coronavirus continues to acquire mutations and threaten economic and social stability around the world.’ Going into 2022, an important pledge the policymakers of both countries and in multilateral institutions should make is to come together as one global humanity facing a global threat. Vaccine apartheid needs to end, and with it, inordinate favours for domestic voter bases and corporate interests.

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Renowned economists, Mariana Mazzucato and Jayati Ghosh, in their recent PS article indicated in this regard ‘In addition to prolonging the covid-19 pandemic and threatening the economic recovery, the new omicron variant is a reminder that our system for managing global health emergencies remains woefully inadequate. Until we can ensure rapid production and equal availability of vaccines globally, the coronavirus will remain in charge.’

Another important issue, and even more consequential in terms of being both an important reason for covid-19, and also overall a significant determinant of existence of life as we know of it, climate change, which continues to remain a big challenge as 2021 saw, especially in the wake of lukewarm response of the COP26 conference in terms of commitments primarily in terms of finishing reliance on fossil fuel in a much faster manner. Co-author of the important and famous book Why nations fail: the origins of power, prosperity, and poverty, Daron Acemoglu highlighted this in the same PS article about predictions for 2022 as ‘It is difficult to be optimistic about 2022. Despite all the corporate pledges and media attention focused on climate change, the COP 26 conference was a failure. In 2022, we will continue to realize that greenhouse-gas emissions are not declining, and that more radical responses are needed.’

In addition, highlighting the needed sense of urgency with regard to combating climate change that needs to be shown going into 2022, especially by the main polluters, Agnes Binagwaho pointed towards some of the significant impacts of climate change in the same PS article ‘Global carbon dioxide emissions will continue to increase, with the largest contributions coming from high- and upper-middle-income countries (European, Chinese, and US per capita emissions are, respectively, six, seven, and 14 times higher than Africa’s). Human activities will continue to fuel climate change, contributing to the fatal decline of important species such as bees, whose colonies are also being decimated by the inappropriate use of pesticides, habitat destruction, and air pollution. Given that heatwaves, droughts, floods, and other extreme weather events prevent people from engaging in agricultural work, and that bees and other pollinators affect 35 percent of the world’s agricultural land and support the production of 87 of the leading food crops, we will see an increase of global insecurity, even in developed economies. Unable to sustain the production of the food they need, many of the world’s poor will be pushed into extreme poverty, suffer malnutrition, and migrate.’

Institutions like IMF persisting with procyclical policies, should adopt a contrary stance going into 2022, while greater financial support needs to be provided by rich countries to developing countries, in the wake of the recession-causing pandemic, slow economic recovery in global south due to serious vaccine inequality, and a significant supply-side global commodity price shock

Call it a lack of ability, or the heightened sense of greed to serve selfish and immediate interests that is hindering policymakers to see the fast-approaching edge of cliff for world, and falling into a very difficult world of high global temperatures and its consequences on environment, economy, and everyday life as we know it, the fast is that the world is entering 2022 with a huge backlog of inaction, and of such important issues as climate change, and vaccine inequality.

And if this was not enough, the world may be getting closer to a debt pandemic and fast as 2022 unfolds, given continued significant influence of Neoliberalism/Washington Consensus on the policy frameworks of many countries, including many rich, advanced countries having strong bearing on global financial system, and multilateral institutions, for instance, International Monetary Fund (IMF).

Such persistence, in turn, has meant that inclination towards procyclical policies in both advanced – since many western capitals already pushing towards tight monetary policies, with a similar stance also likely to be adopted on the fiscal side, sooner than later – and developing countries will lead to curtailing aggregate demand, when the contrary should be persisted with in the shape of looser macroeconomic policies, a balanced macroeconomic policy is pursued that allows giving proper attention to both macroeconomic management, and adequately attending to stimulus/development expenditure, and climate expenditure needs.

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Jayati Ghosh in the same PS article regarding predictions for 2022, pointed out ‘For the developing world, the era of cheap money will end, even if central bankers in advanced economies hold back on plans to tighten their own monetary policies. Given the uncertain, uneven, and unequal recovery from the pandemic, this is bad news for most of the world. Prepare for massively increased financial instability, with more debt crises and banking crises generating economic turmoil in many parts of the world. In fact, 2022 may be the year when global “leaders” finally learn the hard way that protecting their elites’ own interests at the expense of everyone else can have damaging, even catastrophic, consequences.’

Therefore, instead of policies that lead to austerity, rich, advanced countries should continue with macroeconomic policies on a loose side at home while keeping in mind the mainly supply-side nature of inflation. At the same time, both rich, advanced countries, and multilateral institutions move towards undoing the neoliberal nature of policies, which for instance protect IPRs with regard to Covid vaccines, even during the pandemic, and on the other hand, understand the limitedness of the usage of macroeconomic policy tools with developing countries given the longevity of the pandemic, and slow economic recovery in the wake of vaccine inequality, producing greater demands on governments to provide for stimulus/development expenditures, especially for health sector, and also overall greater and more inclusive economic growth, given the highly likely rising levels of inequality and poverty.

Hence, institutions like IMF persisting with procyclical policies, should adopt a contrary stance going into 2022, while greater financial support needs to be provided by rich countries to developing countries, in the wake of the recession-causing pandemic, slow economic recovery in global south due to serious vaccine inequality, and a significant supply-side global commodity price shock.

Dr Omer Javed
The writer holds PhD in Economics degree from the University of Barcelona, and previously worked at International Monetary Fund.Prior to this, he did MSc. in Economics from the University of York (United Kingdom), and worked at the Ministry of Economic Affairs & Statistics (Pakistan), among other places. He is author of Springer published book (2016) ‘The economic impact of International Monetary Fund programmes: institutional quality, macroeconomic stabilization and economic growth’.He tweets @omerjaved7

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