Debt, inflation and employment after the pandemic

Government spending and central bank actions are fundamental drivers of economic activity. These so-called macroeconomic policies influence every part of the economy, ranging from the labour market, to the housing market to business investment.  For a long time, the core laws of macroeconomics seemed clear.

But the 2008/09 financial crisis and the Covid-19 pandemic upset the established consensus, triggering new and unconventional actions. Economies around the world grew slowly over the last decade, and the pandemic has plunged them into deep recessions. Mass unemployment is a real risk and many are worried good growth might not return.  Governments have acted boldly to turn the tide. For instance, hitherto spendthrift governments like Germany have swapped the ‘Schwarze Null’ for large-scale government borrowing and investment programmes, resulting in huge increases in public debt. Central banks are not only buying a lot of this government debt. But they are also considering setting negative interest rates, which would in effect mean asking savers to pay for saving money. There is much disagreement about which approach is the right one, how much to borrow and when to stop.

In this seminar, we will try to make sense of this extraordinary situation. We will learn what different paradigms say about these policies, and how to choose. We will do some hands-on data analysis to help us in this quest and we will ask if social justice considerations ought to play a role in picking the right policies. Building on this, we will ultimately ask: what is our policy advice to the German finance minister and the head of the Bundesbank to get the German economy back on track?

Get the seminar briefing pack.

Philosophy and Economics Programme, University of Bayreuth

Winter 20/21, with Carsten Jung

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