Fresh COVID fears will confuse economic policymaking

Headline INTERNATIONAL: Fresh COVID fears will confuse policy

More Than Macro Stability

For economic growth to accelerate, as it did in Spain in the decade after 1950, requires more than just increased political stability. This chapter documents the drastic turnaround in economic policymaking that took place, from an autarkic and statist orientation to a more open and market-friendly one. It also provides a counterfactual exercise to help us gauge the impact of economic reforms. The analysis makes clear two important conclusions. First and foremost, the growth dividend from improving economic policies in Spain was large. The most impactful reforms were those that implied removing excesses that were causing large distortions, such as the misalignment in the exchange rate. The second conclusion is that this improved performance was the result of a decade-long reform process. The results from the counterfactual exercise suggest that the early reforms undertaken before 1959 played almost as much of a role as the 1959 Plan did in stoking growth. This finding is in contrast with most of the literature which, with few exceptions, has focused perhaps too much on the importance of the 1959 Stabilization Plan. This finding also raises important questions why reforms were undertaken and puts in doubt the existing mainstream view that a desperate economic situation had prompted the adoption of the 1959 Stabilization Plan.

The concept of Ordnungspolitik: rule-based economic policymaking from the perspective of the Freiburg School

Should economic policy be guided by rules? In this paper, we take the perspective of the Freiburg School and trace its argument for rule-based Ordnungspolitik back to the roots of the concept. In doing so, will not offer a comprehensive review of the literature, but argue closely along the works of Walter Eucken, whose contributions are central to understanding the founding generation of the Freiburg School. We argue that not having rules is costly and therefore that the main thrust of the Freiburg approach remains valid. Good empirical arguments can be found for pursuing a rule-based Ordnungspolitik in order to avoid the costs of discretionary policymaking. Furthermore, we argue that reliance on stable rules does not incapacitate democratic decision-making. Rules rely on democratic support, and rule-based Ordnungspolitik also leaves substantial material scope for discretionary democratic decision-making.

Monetary Faith

The natural interest rate was the most important variable of monetary economics in the twentieth century. It has lingered in the background of economic policymaking, dictating the terms of debate for economic policy in general, and central bank policy in particular. The central banks pledge that if economists have enough faith in this unseen entity, we all will be the recipients of economic grace.

Establishing Control: Economic Affairs

This chapter describes in depth how MBS and MBZ have established their control by dominating most aspects of Saudi Arabia and the UAE’s economies and economic policymaking. Firstly, the extent to which their inner circles have been able to expand their influence over major economic institutions is considered, including most notably their command over hydrocarbon-related authorities and sovereign wealth funds. Secondly (and specific to the UAE’s federal dimension), the nature of Abu Dhabi’s economic supremacy is discussed, including its steadily growing influence over Dubai’s economic affairs. Thirdly, both rulers’ extensive anti-corruption campaigns are explained, including MBS’s apparent ‘shakedown’ of once influential Saudi businessmen. Finally, MBS and MBZ’s attempts to reform tentatively Saudi Arabia and the UAE’s respective rentier structures are studied, including their careful ‘give and take’ approach to removing and then often re-instituting various subsidies and benefits.