Too often, crises fail to be used for anything meaningful. This time, unexpectedly, it’s different.
Ideally, crises are used to improve things. A lot is in motion and major changes are easier to implement. Unfortunately, crises are often wasted. Everyone is busy trying to get through the crisis somehow instead of using it to initiate reforms, for example.
It doesn’t have to be a crisis like the pandemic. The economy fluctuates along a cycle. Recessions happen regularly and are not really surprising. Nevertheless, every time there is a recession, governments look helplessly into the void. Months later, they come up with the idea of cutting some tax rate temporarily and minimally.
Governments want to help the economy, but each time they don’t quite know how. During the many years of growth, no one seems to be thinking about the next sensible economic stimulus program. Thus, the additional expenditures within the framework of economic stimulus programs are usually not very efficient and tend to be wasted. If you’re going to approve additional spending, why not do it for something meaningful?
Politicians seem to have asked themselves the same question during this crisis. Short-term interventions at the beginning of the crisis followed the typical course. In retrospect, much of it can be seen as wasteful. But there is also sensible spending, both in Europe and in the USA.
For the first time in decades, large-scale investments are to be made in infrastructure. That is bitterly necessary. In the USA, the state has hardly invested at all in recent years. In the private sector, too, investment has been on a downward trend over decades and fluctuations (chart below).
The picture is no different in Europe. Lack of investment leads to an aging infrastructure. Bridges, roads, buildings, all are approaching an average age of 70 to 100 years. This leads to inefficiencies. Existing infrastructure needs to be repaired and upgraded.
That alone is not enough. New infrastructure is also needed. Everyone talks about the Internet age, but when the speed makes even sending an email an eternity task, it’s hard to benefit from digitization.
Many people wonder why productivity has hardly grown at all in recent years. It was probably due to a lack of investment (chart below). The covid-19 crisis is finally being used to invest. In the USA, it is not yet known how much it will be in the end. In the EU, the reconstruction fund focuses on the infrastructure of the future. In total, the package has a volume of 1.8 trillion euros.
The price tag does not do justice to the value. 1.8 trillion sounds a lot. The value it creates for the next generation is immense. That’s why productivity won’t go up tomorrow. It will take years. However, it is a good foundation stone to escape the long stagnation.
