Where do we go from here? Principles for the 2020s economy

In this NERI Blog, Dr Tom McDonnell, NERI Co-director looks beyond the current crisis to discuss some of the principles that should guide economic policy into the 2020s, whether in the Republic of Ireland, Northern Ireland, or further afield.

Growth

The world economy is suffering through its deepest recessions in decades. Even so there is potential for a strong recovery in 2021 should the virus be contained and the right policies taken at national and international levels. 
Thus far the correct approach has been taken in most European countries. Wage subsidy and furlough schemes will help preserve productive capacity while income supports will help preserve demand. Crucially, governments and central banks have expressed willingness to do whatever it takes to rescue their economies. 

Looking ahead, governments will need to act as the liquidity and income source of last resort until such time as the economy can fully reopen and then reassume these responsibilities if and when there is a second lockdown.

While the economic context is highly unusual the broad principles of good economic management remain in place.

The newest NERI long-read (which you can find here) looks beyond the current crisis to discuss some of the principles that should guide economic policy into the 2020s, whether in the Republic of Ireland, Northern Ireland, or further afield.
As we move past the support and stimulus stages of the response to Covid-19 we will have to make difficult choices about what to prioritise. My view is that economic policy should focus on the triple bottom line of growth, equity and sustainability. The only truly sustainable form of growth is growth based on knowledge production and diffusion manifesting as productivity gains.
This long-read offers a playbook of principles that can guide us in the direction of inclusive and sustainable growth. 
In terms of fiscal policy, and in order to support sustainable growth, the emphasis post 2021 should be on green infrastructure, on significant increases to public R&D and education spending, on public transport, and on expansion of subsidised childcare. 

Increased funding for universal basic services, especially housing and healthcare, alongside sufficient levels of social transfers will help ensure that the economic recovery and future development is more inclusive. This applies to both economies on the island.

On the other hand, there is little merit in further narrowing the revenue basis over the medium-term. Rather, there is a strong case for increasing revenue from taxes on wealth, on property, on passive income and on employer social insurance. In any event, worsening demographic conditions will require a fundamental overhaul of social insurance systems.

Ultimately, sustainable and inclusive development will only happen if we make the right choices.      
 

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Dr Tom McDonnell


Tom McDonnell is co-director of the Nevin Economic Research Institute and is based in the Dublin office. In addition to managing staff in the Dublin office he has co-responsibility for the NERI's research programme and for its strategic direction.  

He is also responsible for, among other things, the NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth, economics of innovation, Irish and European economies, and fiscal policy. 

He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University (MU) and is currently an occasional staff member at MU. 

Tom obtained his PhD in economics from NUI Galway. He is a native of Limerick city and lives in Maynooth.

Contact: [email protected] or 00353 1 889 77 42.