Globally, human behaviour had already seen significant changes in recent years, and these changes have accelerated during the pandemic. Albeit painful and unwanted, the pandemic has arguably provided an opportune moment for creative destruction to take its course and for the private sector to develop industries that better suit the wants and needs of people. As such, one of the risks of pushing a Keynesian theme is that it will serve to support some industries that policy-makers have decided upon. As an aside, those decisions would most likely be accompanied by lobbying and uncompetitive endeavours, although even if we assume benevolence, the government cannot know the needs of people better than they do themselves, and cannot act more efficiently than the market mechanism. Invariably, this would hinder the development of new industries.
At the same time, the government’s increased role in the economy would be accompanied by wide budget deficits, and rising public debts. This can only be paid for through higher taxes or inflation, both of which have the same negative consequences for future generations. At some stage or another, the average person would need to pay for Keynesian excesses. So although the Keynesian policies would limit the losses in aggregate demand in the near term, it may very well come at the cost of bigger losses for future generations.
Another concern (from a non-Keynesian at least) is whether government investment would be productive. One sector in which government investment can still make a big difference is renewable energy. Apart from that though, most of the advanced world has enough infrastructure, social safety nets and security forces to make lives safe and comfortable for its people. Instead, a more productive outcome might be if advanced economy governments use their wealth (and their ability to raise funds at little cost) to invest in developing economies where infrastructure is inadequate to support economic growth. The entire global economy could be shifted to a higher level if the infrastructural challenges of poor countries can be solved. The caveat here is that corrupt governments in poor countries should have no control over the investments and therefore industries benefiting should be completely privatised as a prerequisite for investment. Unfortunately, that might be an impossible ask.
You may be interested in
Too much of a good thing? Fiscal stimulus in the global construction market
Fiscal stimulus remains an important chapter in the economic playbook. Governments worldwide have set their sights firmly on public infrastructure investment as a means to spark demand and employment following the coronavirus-induced economic downturn.Find Out More
Europe’s fastest-growing cities, pre- and post-Covid
An important question that we at Oxford Economics address in many forms is the extent to which the Covid pandemic, the Russian attack on Ukraine, and the global surge in inflation resulting from both have changed our views about medium-term prospects.Find Out More
What governments in Asia can do to mitigate climate-driven food price spikes
Over the past decade, climate change has made Southeast Asia’s weather hotter and more unpredictable than ever before. Mean temperatures are around 3 degrees Celsius higher today than they were in the 1950-1980 period, and the range of temperatures has widened by around 2 degrees. Rainfall has trended downward, but with increased volatility. And more instability is on the way—the Intergovernmental Panel on Climate Change warns that weather extremes will become far more frequent as global warming progresses.Find Out More