How to think about policy in a polycrisis

Article by Martin Wolf: “Welcome to the “polycrisis” — a world in which, as historian Adam Tooze says, “economic and non-economic shocks” are entangled “all the way down”. We have an inflation shock that emanates from the disruptions caused by a pandemic, the policy responses to that pandemic and an energy shock caused by a war. That war in turn is related to the breakdown in relations among great powers. Slow growth, rising inequality and over-reliance on credit have undermined political stability in many high-income democracies. The credit boom led to a great financial crisis whose outcome included a decade of ultra-low interest rates and so even more financial fragility worldwide. Adding to these stresses is the threat of climate change.

It is indeed convenient to think about the world in intellectual silos, focusing in turn on macroeconomics, finance, politics, social change, politics, disease and the environment, to the exclusion of the others. In a reasonably stable world, this may even work well. The alternative of thinking about the interactions among these aspects of experience is also too hard. But sometimes, as now, it becomes inescapable.

It is not just theoretically true that everything depends on everything else. It is a truth we can no longer ignore in practice. As my colleague Gillian Tett often warns, silos are perilous. We have to think systemically. Economists have to recognise how the economy is interconnected with other forces. Navigating today’s storms compels us to develop a wider understanding.

This is not an argument against detailed analysis of individual elements in the picture. Economists should still look carefully at the things they know about, because they are both complex and important in themselves. Thus the data and analysis in the OECD’s latest Economic Outlook continue to be both invaluable and illuminating. But, inevitably, they also omit vital aspects….(More)”.