The economy turned upside down



If economics has established itself as a recognized discipline, a fact that the awarding of the Bank of Sweden prize, designated by the shortcut “Nobel Prize in economics”, has been consecrating since 1969, it must be admitted that it is not , despite its claims, as exact as the so-called hard sciences.

To be convinced of this, it suffices to note how much, thanks to recent shocks – the financial crisis of 2008 first, then that caused by the coronavirus -, the laws and postulates that we believed to be solidly established to explain the operation market are deeply challenged.

Thus, for several years now, the general public has heard, to their amazement, about negative interest rates. Phenomenon which, a priori, seems to defy common sense.

Any individual who requests a loan from his banker knows that the money he borrows will have a price, measured by the interest rate. Its level depends on several factors: the time taken to repay, the risk estimated by the lender, expected inflation, the balance between supply and demand.

The interest rate can therefore be higher or lower, but in all cases it will be positive. Except that, from now on, it happens that States of the euro zone borrow at negative rates, private investors agreeing to lose money to hold bonds issued by these countries.

This is particularly the case of France which, in 2019, borrowed part of the 200 billion euros of debt issued by Agence France Trésor under these more than favorable conditions.

But the surprise of economists never lasts long. The explanation would be to be found, according to them, on the side of the novel monetary policies adopted by the central banks, including the European Central Bank.

“In response to the repeated crises affecting activity, they have made the choice, political as well as economic, to support growth and employment by flooding the market with liquidity”, emphasizes Éric Monnet, from the Paris School of Economics.

In particular by mass repurchasing of government bonds, helping to make these financial products rarer and therefore more expensive. This has the effect of reducing their yield, which is determined once and for all when the security is issued.

“But, in the context of uncertainty in the world economy, investors are looking for safe investments to guarantee their savings, even if it means paying for it”, continues Éric Monnet.

Is it good for the economy? Do central banks encourage investment or do they encourage speculation? Do they support public action or do they invite budgetary laxity? On these questions, the debate is far from settled.

On the other hand, one thing is certain: these trillions poured into the economy will not have moved inflation one iota. Against all expectations, it remains desperately low in all developed countries, to the point that some fear the entry into a deflationary cycle, prelude to a lasting recession.

Here again, the whole economic theory falters. “For the supporters of the American Milton Friedman, Nobel Prize for economics in 1976, inflation results first of all from a quantity of money in circulation which increases faster than production, leading to a rise in prices”, decrypts Florence Jany-Catrice, from the University of Lille.

The current reality seems rather to agree with the “heterodox” economists who first think of inflation as the result of a balance of power between employers and employees around the question of wages, any increase in the latter being passed on by employees. companies on their prices.

“Growth, unemployment, inflation: these macroeconomic indicators are insufficient to take account of a real economy marked by the rise in precarious and poorly paid jobs, inequalities and social insecurity which weigh on household confidence and therefore on consumption “, insists Florence Jany-Catrice.

In addition, there is a difficulty of measurement, the institutes struggling to distinguish the part which amounts to the pure increase in price from that which relates to the increase in product quality. A problem that statisticians have never been able to solve. This perhaps explains the difficulty economists have in understanding the impact of innovations on growth. “The number of hypotheses to explain the breakdown in productivity experienced by developed economies is an excellent illustration of this”, emphasizes Valéry Michaux, from the Neoma Business School.

The quarrel dates back to the late 1980s, when the American Robert Solow, growth theorist and Nobel Prize winner in economics in 1987, exposed the paradox that “Computers are everywhere, except in statistics”. In other words, where have the productivity gains promised by the digital revolution gone?

We are still discussing it. “With, on the one hand, the techno pessimists who believe that these new information technologies bring only limited progress, decrypts Valéry Michaux. On the other hand, those who consider that technical progress does not automatically increase productivity. If only because it is necessary to reorganize the work and the increase in skills, which takes time and has a cost. “

Gilbert Cette, from Aix-Marseille University, readily falls into the second category. “It took six decades for the electric motor to spread. The digital revolution, which has only just started with 5G, artificial intelligence and big data, will disrupt all sectors of activity. “

The whole question is when. “The current crisis can be a tremendous accelerator. And the sooner the better, Gilbert This pleads. Because, faced with the challenges that lie ahead – financing aging, debt and ecological transition while preserving purchasing power – our economies cannot miss the meeting. innovation. “

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