Foreshadowing Change? Theories, Policies, and COVID-19

Abstract:

The COVID-19 crisis determined a forceful change in European policy. Despite the theoretical dominance of the mainstream, metrics other than prices were used to decide how to deal with issues such as provisioning, subsidies, and the financial measures they required. This change, which involved both policy makers and the general public, undermined the dominant view that price-centered coordination of the economy constrains socially relevant decisions. It suggests that neoliberal dominance is not robust either in terms of policy priorities or in the way it affects people’s behavior. It also suggests that what a proper economic policy requires is an economic theory that does not merely describe the institutional status quo but foresees its possible change.

Keywords:

• COVID-19
• Europe
• Theory of Economic Policy
• policy

JEL Classification Codes::

• A13
• D01
• D02
• D63
• H12
• I31

Notes

1 My concern is with the main features of this change. I therefore do not focus on the different ways it affected policy makers and voters.

2 Probably, the only appropriate metric was the probability of contagion: for instance, whether the probability of contagion would be higher because of the provision of internet services that made (virtual) socialization possible or because, in the absence of such services, people would seek in-person socialization.

3 The emphasis I lay on this change of mentality should lead one neither to believe that it occurred immediately nor that it involved everybody. Most policy makers took a great deal of time to realize how dramatic the crisis was and the need for appropriate action. A prominent example is ECB (European Central Bank) President Christine Lagarde’s blunder, on March 12, 2020, that “we are not here to close spreads. This is not the function or the mission of the ECB.” (https://www.ecb.europa.eu/press/pressconf/2020/html/ecb.is200312∼f857a21b6c.en.html#footnote.1; accessed August 17, 2020). Similarly, in a joint document, dated April 8, 2020, four regional branches of Italy’s employers’ federation stated that “we must be aware that the health emergency will be followed by a profound economic crisis: we must therefore be able to deal with it so that it does not turn into depression and to do so we first need to safely reopen businesses.” (https://confindustria.lombardia.it/comunicazione/comunicati-stampa-e-dichiarazioni/agenda-per-la-riapertura-delle-imprese-e-la-difesa-dei-luoghi-di-lavoro-dal-covid-19; author’s translation; accessed August 20, 2020).

4 Markets, in this framework, consist of (relative) prices, along with whatever institution is deemed necessary to make them operate efficiently.

5 A detailed discussion that follows this approach is in Mitchell and Fazi 2017, chap. 7.

6 See Rodgers 2011, Waller 2015, and Piketty 2018 for a set of interesting, if diverse, insights.

7 Ramazzotti 2020a provides a critical discussion of this view.

8 The annual report of Italy’s Statistics bureau states that “A strong cohesion was the sentiment that mostly characterized the country during the lockdown.” (ISTAT 2020, 57, my translation). An international outlook is in Sitrin and Colectiva Sembrar 2020; https://www.weforum.org/agenda/2020/03/covid-19-coronavirus-solidarity-help-pandemic/; https://www.solidarityandcare.org/stories (accessed July 29, 2020).

9 Compare the Italian prime minister Giuseppe Conte’s warning (April 9, 2020) that “Europe’s leaders were ‘facing an appointment with history’ that they could not miss” and that “If we do not seize the opportunity to put new life into the European project, the risk of failure is real.” (https://www.bbc.com/news/world-europe-52224838; accessed August 17, 2020) with the February 8, 2015 squabble between Greek and Italian economic ministers, when “Mr Varoufakis [ . . . ] incurred the wrath of his Italian counterpart Pier Carlo Padoan by comparing Italy’s problem with its large public debt to those of Greece.” (https://www.ndtv.com/business/greece-warns-euro-could-collapse-like-house-of-cards-738288; accessed August 17, 2020).

10 Little matters that these norms were appropriate for growth only from a very restrictive mainstream perspective. The issue is that policy makers who accepted these norms decided to do away with them.

11 A more extensive discussion of some of these issues is in Ramazzotti 2020b.

12 In more rigorous terms, the issue is whether it extends their freedom of opportunity, as distinct from their freedom of choice (Sen 1999).

Additional information

Notes on contributors

Paolo Ramazzotti

Paolo Ramazzotti is an associate professor of Economic Policy at the University of Macerata.