Former IMF Official Presents Two Paths for ‘New Normal’ in Post-Pandemic Global Finance

Former International Monetary Fund and French Treasury official Jean-Pierre Landau laid out two potential paths to confront the pandemic’s effects on global finance in a webinar hosted by the Harvard Kennedy School Wednesday evening.

Landau, an associate professor of economics at SciencesPo - Paris and a Kennedy School research fellow, said the massive amount of spending to address COVID-19 has resulted in virtually all nations accruing a high level of public debt, a situation which has “no precedent in peacetime.”

Landau presented two distinct ways to address the economic consequences of COVID-19: a conservative, “alarmist” approach and an optimistic one that sees the current crisis as an opportunity.

Those taking the conservative approach, Landau said, are anxious about the economic consequences of seemingly endless lending.

“They fear and they predict that this will not end well that the conjunction of the very high debt and very high money growth and very large balance sheets of central banks is not going to end well,” he said.

Conversely, Landau said, there are economists who view the economic crisis as an opportunity to revise monetary policy and the broader systemic frameworks he called the “monetary regime.”

“On the other side of the spectrum, you have a whole brand of opinion — we say, ‘Well, this is exactly the situation we’ve been advocating and predicating for decades. And this is an opportunity to create a new, necessary monetary regime,” he said.

Under this “new normal,” central banks and national governments would operate in tandem, rather than independently from one another, Landau explained. He added that central banks’ autonomy from government is a new development, and that as recently as the 1970s, the Ministers of Finance in both France and the United Kingdom dictated interest rates.

Landau argued that he most prudent way forward is to draw from both approaches in a “schizophrenic” manner, enacting significant changes in the present while taking more conservative measures in the future.

“What is needed today and what is needed tomorrow are actually two very opposite things,” he said.

Landau said economic policymakers need to be “as permissive as possible today” to address the crisis caused by the pandemic, but noted that “we need to be very careful tomorrow not to destroy the foundation” of current economic stability.

In an interview following the webinar, Landau said he hoped that through the event and public policy conversations at large, individuals will gain the capacity to address complex challenges while formulating their own informed opinions.

“You have to understand the people who disagree with you, where they come from, what is their opinion, but, of course, you have to stick to your opinion as well,” he said.

Ultimately, Landau said, economists’ top priority will be to stimulate the economy in time to avert another global recession.

“Clearly, they are now very much motivated by the necessity of avoiding a downward spiral,” he said. “In a crisis like this, you really want to avoid the downward spiral.”