“The crisis pays for itself with low interest rates”

Daniel Cohen, at the

Daniel Cohen, sovereign debt specialist, heads the economics department of the Ecole normale supérieure and is also a member of the supervisory board of World. He believes that states should not worry about debt, but the consequences of low interest rates and the digital society that is taking hold.

The entire exchange on video: Economy Club | What industry, what economy, what society after the pandemic?

Rethinking the recovery plan

“We have to distinguish between a plan to safeguard the sectors and people who are being shattered by the crisis, and the exercise which consists of projecting oneself into the XXIe century and to reflect on the measures that can be taken to support France’s changes in this new world that awaits us (digital, energy, social), and not mix the two.

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If we really think that there will be a vaccine during the next year and that, perhaps at the start of the next school year, things will return to normal, that means that we have a big year and a half major crisis. We can afford to be generous to support businesses or individuals as closely as possible, with the thinnest devices possible. “

Why inflation has disappeared

“The crisis is paying for itself with very low interest rates. Leading economists have already spoken for several years of secular stagnation to explain this interest rate context. This notion simply meant that the inflationary pressures that had made the heyday of the 1970s and 1980s after the oil shock had passed. Inflation was the recurring evil that plagued societies as they transitioned from the industrial societies of the 1960s-1970s to the post-industrial societies of the 1980s-1990s. This transition has been accompanied by a disappearance of inflation. Because it is always linked to wages, the job market, and very rarely to currency.

We are in a world so invertebrate from the point of view of social relations (with the loss of strength of trade unionism) that it makes it almost impossible to express the increase in wages. Inflation goes elsewhere. In the price of financial assets, in those of real estate. And even when there are wage increases, companies are under such international competitive pressure that the transformation of these wage increases into price increases cannot occur.

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As a result, everything that has been institutionally built (independent central banks, with the sole aim of controlling inflation) is brutally obsolete. We will end the year with zero inflation in France, according to INSEE forecasts, and perhaps 0.3% in the euro zone. It’s reminiscent of the 1930s. At the time, politicians were obsessed with inflation, especially after the trauma of German hyperinflation in 1923, when it was in a period of deflation.

However, in a situation of deflation, monetary policy is not very effective. It is fiscal policy that can drive economic activity. It’s okay to get into debt, because debt doesn’t cost anything to repay or refinance (I’m talking about states, not corporations). In today’s time of crisis, this is nothing to worry about just yet. From this point of view, the state has many more degrees of freedom than it had before. “

A century of deflation … and precariousness

“If there were any reversals, it would mean that we would finally come out of this slump. But beware, this can take a long time. The XIXe a century has been a century of deflation. We are in something which, on the scale of history, is perhaps a new way of conceiving the relationship between debt, public policy and deficits. “

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“We remain marked by the experience of the XXe century, but, in reality, we may be experiencing a capitalism of a completely different nature, rather that of the XIXe century, with a lot of precariousness, a lot of fragility and a lot of difficulty in transforming the productivity gains that can be observed everywhere into wage increases. That is why we read Dickens or Marx. There is the story of great workers’ misery, which nevertheless takes place at a time when capitalism is experiencing its heyday. There may be a disconnect between the two. I think we are experiencing a disconnection of this nature. “

The digital society

“There have always been services, but they were hollow, driven by the dynamics of the industry. This is no longer the case. There are few jobs in industry today, and the bulk of our consumption, goods and jobs reside in the service sector. It’s good news. In his book The Thirty Glorious Years or the invisible revolution, published in 1979, Jean Fourastié explained that mankind had cultivated the land for millennia, before working the material in the industrial world. In the coming service society, he predicted, the man will work the man himself. It is the great hope of human society to look after each other.

Our modern societies need to offer a promise to everyone to rise above their condition. They do not know how to otherwise appease the social tensions that run through them

But, unlike industry or agriculture, a service company does not generate productivity gains, that is, it does not generate growth. The value of the property is the time I spend with the client or patient. It was good news for him, but it doesn’t work. First, because capitalism is a machine that seeks productivity gains everywhere, with a recurring obsession with lowering costs. Then, our modern, egalitarian societies need to offer everyone a promise to rise above their condition. They do not know how to otherwise appease the social tensions which cross it. This is what makes the alliance between capitalism and modern democracies.

We have seen for ten years that the digital society is offering a solution to this growth problem. But by doing basically the same thing as industrial society in its day, that is, by dehumanizing social relations. The industrial company had managed to create growth in the XXe century thanks to assembly-line work. Replacing the work of artisans with assembly-line work had been interpreted as a formidable dehumanization.

Covid-19 is a health crisis that, a priori, has nothing to do with what we are talking about. In reality, this period is being experienced as a phase of accelerating transformations in digital society. By making society phobic of face-to-face relationships, it accelerates exactly what the digital society is made and thought of: to exempt people from face-to-face and face-to-face. “

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