The first year of Covid rattled confidence in governments round the globe. The 2021 energy price surge is exposing a swathe of vainglory and folly in policymaking.
Yet looking back over the last fifteen years or so, it seems remarkable how ‘hands on’ government has confounded its critics. Global financial panic, Eurozone debt crisis, Brexit ructions, Covid pandemic – in each case the gloomsters were largely confounded.
Worst case scenarios did not materialise. A handful of decisive policy steps and a great deal of ad hoc tinkering have seen living standards, jobs and house prices protected.
Outcomes count for a lot. But they depend also on what happens under the surface.
Joseph Schumpeter derived the theory of creative destruction. That is the replacement of old jobs with new, more productive ones. Not on a planned basis by electoral cycles, but with the uncertainty of innovation, directed by markets and driven by self-seeking private investment.
The inconsistent human desire to enjoy both stability and the fruits of this process at the same time often results in imbalances, and these can slow, sometimes even stop, the process itself.
After the first world war, this took a decade to happen. Monetary imbalance, trade disruption, poorly functioning labour markets, political instability and economic uncertainty came together in a prolonged slump.
Likewise in the great recession of the 1970s: inflexible financial and labour markets; and political upheaval coupled with energy and commodity market volatility.
It was a time when tough and experienced politicians looked well out of their depth.
In both cases, there were plenty of fantastic productivity-enhancing ideas around. But it took years for economies to get back into a humming productive groove. And for much of the period the protection of vested interests sounded louder than the cry to let resources (and rewards) flow from the old to the new.
Who knows if today’s energy disruptions – or an inability to suppress a rise in global interest rates – will in time be seen as the trigger for the next crisis.
The main reason to hope not is the extraordinary job-creating resilience of the world economy in this century. The private sector economy that is.
But the imbalances have also kept growing over this time – some of them historically familiar: monetary imbalance and debt, distorted housing markets, inflexibility in (some) labour markets, politically-driven investment.
Governments of every political stripe – from A(rdern) to B(oris) – are focused on salving the smallest injuries to their constituencies. But they know success does not diminish expectations.
At times one marvels at their skill in juggling expectations, whilst keeping the imbalances at arm’s length.
And when they can’t any more, a new generation will be able to experience what it feels like when the government is not in control.