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IB - Economic Policy
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IB - Economic Policy
Moreover, it was projected the global overall economic process including that of trade is
currently facing a high risk of halting since more countries are progressively implementing
quarantine and social distancing. Significantly, the World Trade Organization indicated
that the global trade was already facing a regression in the year 2019 associated with the
China-U. S tariff war is projected to be face a plummet estimated between 13 percent and
32 percent during 2020. Although a recovery might be feasible during 2021, it is not
optimistic since it is mainly liked to the interventions that might seize or effectively limit
the outbreak. Hence, each government which will seek the protection of its country, is
projected to focus on salvaging its favored business and industries, and therefore, more
protectionism will be enforced.
Apps (2020, March 10) stressed on the heavy impact of coronavirus on the globally
economy with relation to the duration it might last up to. Apps through Reuters exclaimed
that the trade war will extend beyond that of the U.S and China was had been
predominating the geopolitical scenery for the past years. The insights speculate that a
rapid progressive trade war will contributed to a global trade and economic confrontation
which is a clear indication of the protectionism feared post the financial crisis encountered
in 2008. However, the current protectionism questions the reality of the globalization and
its evident gaps which had been highlighted recently. For instance, these projections are
mainly prospected to incur its heavy impact on the oil enriched governments and
producers such as the Middle Eastern countries and Russia where both have a high vested
inclination and interest in maintaining their industries intact while avoiding alternative
investments such as that of green businesses and shale. Nonetheless, these countries had
already been facing threats from the growing focus of the Western Green revolution
which imposed major threats on the stability of the economy in Russia.
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III. Reflection
Beshudi (2019, November 11) had suggested that December 2019 will mark a major shift in
the world trade operations which will have drastic implications on the global trade in general
and the economy in specific. Thus, despite this speculations, most of the global world didn’t
react against the disruptive tariff policies that are implemented globally and through the
onset of the coronavirus crisis, the global trade projections to be disrupted and disseminated
as the global economy know it became clear as more countries were already implementing
protectionism as measures to sustain their development and protection from losing
comparative advantage. However, what no one anticipated was the great shock of the china
crisis which implicated drastic reconciliation of the global chain mechanism of trade. The
deadlock that the world is currently stuck in is only among the first stages of the fallout of
economy that will be witnesses in the upcoming short months. Therefore, protectionism was
already paving its way progressively through the global economy mainly due to the tariff war
between china and the U.S and has been made more feasible due to the onset of coronavirus.
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References
Apps, P (2020, March 10). Coronavirus unleashes economic warfare. Reuters. Retrieved from:
https://www.japantimes.co.jp/opinion/2020/03/10/commentary/world-
commentary/coronavirus-unleashes-economic-warfare/#.XpXoa25uLIU
Beshudi, A (2019, November 11). The end of world trade as we know it. Politico. Retrieved
from: https://www.politico.com/amp/news/2019/11/20/world-trade-end-donald-trump-
072257?__twitter_impression=true
Lee, Y.N (2020, April 9). Coronavirus pandemic will cause a ‘much bigger wave’ of
protectionism, says trade expert. CNBC. Retrieved from:
https://www.cnbc.com/2020/04/10/coronavirus-expect-a-lot-more-protectionism-says-
trade-expert.html
Legrain, P (2020, March 12). The outbreak has been a gift to nativist nationalists and
protectionists, and it is likely to have a long-term impact on the free movement of people and
goods. Foreign Policy. Retrieved from: https://foreignpolicy.com/2020/03/12/coronavirus-
killing-globalization-nationalism-protectionism-trump/
Lester, S (2020, March 30). The Coronavirus Crisis Is the Right Time for Free Trade. The
National Interest. Retrieved from: https://nationalinterest.org/blog/buzz/coronavirus-crisis-
right-time-free-trade-138157
Mingardi, A (2020, February 28). Coronavirus and the free trade narrative. The library of
Economics and liberty. Retrieved from: https://www.econlib.org/coronavirus-and-the-free-
trade-narrative/
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Republicans, tend to be arguing the supply side, implementing lower interest. As they see
matters in a way where supply creates demand. We see this relation with Hayek’s school of
thought of the ‘free market’ approach; with social democracies. Big state, small state; in
domestic economics small state remains popular. Hayek stresses that big state is a bad idea;
utilitarianism, where big state always had little freedom, making processes less flexible and
or free. Human beings, being part of this big central bureaucracy at the moment, have
decisions being acquired which may be good for some certain corporations or states, but may
affect others drastically. Hayek also makes mention that when companies are part of this
system with lots of regulations, in times like these, with state intervention. We know that
these big corporations are having running costs as well as differentiated forms of costs;
friction, that serve many issues in such times. (Ex; budget deficit policies, interest rates;
private equity firms), looking to make its processes simpler with the current government
bailout - nationalism. This may also cause other sectors whom strive for government bailout
to cause tension or a moral hazard, which is bad economics. With times of crisis, we tend to
see high degree of friction, as things are changing drastically at the moment as well as sectors
changing with new technologies.
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Governments are showing their nationalistic - bailing, running out deficit (requirements for
budget deficit), as they, the big corporations are ‘holding hands’ too much in this matter of
time- with the 2T$ stimulus. As well as the solidarity of governments which are expected to
be bailing out the big corporations. Parallel with Hayek; Liberty (policy which evolves markets,
markets are what give you liberty) as big corporations should not be subjected to failure. The
current situation could relate back to smith, about being part of the right sector/job in the
right state/country, while others tend to be hoaxed or disregarded, in relation to the bail out-
intervention. Some sectors tend to be receiving the suitable bailout, while others whom seem
or tend to be big players as well, aren’t really seen with high importance (international
division labor) in this paradigm for a nationalistic approach.
When going back to the Washington consensus, not to run big deficits (Anti-Keynes), have the
state spend lots of money. However, here it is rather low spending, meaning little or no taxes,
in the current pandemic. When arguing Hayek vs Keynes, in regards to real interest rates,
Hayek moves forward with a liberal market economy, which is small state.
Another entity as a modern principle, with lots of criticism about ignoring people or sectors
who are not competitive; prioritizing others, or aren’t seen as having such a superior impact
rise are intact with nationalism. In modern, if you let the economy be efficient (allocate), then
wealth will ‘trickle down’ parallel to times of crisis. Meaning let the rich make a lot of
money/capital, and then they can employ – achieve different scales.
-Democrats, whom cover the demand side. Argue economics starts with demand,
which in this situation need considerations for the healthcare, government households,
infrastructure, basically putting money in its citizen’s pockets; supporting consumers. With
popular pressure considerations, due to lower wages and pay cuts for employees occurring,
and high prices for customers. Within the side or arguments of the democrats, it is in relation
with Keynes (when economy is hot) with state intervention; regarding interest rates – for
increased public spending. Having Keynes’s parallel with the argument that certain points in
time need a budget surplus, while in some uprising situations, may need a budget deficit; as
the US this year plan its budget deficit of over 1T$. So matters of sovereignty are in act
between democrats and republicans with the paradigm of nationalizing - intervention, could
be corresponding to the ideas of regulation and deregulation of certain sectors. Within
democrats (demand side) complications are on the rise with matters of bubbles in
prices(message). For the democrats, economics starts with demand. Referring back to Keynes,
in this current crisis; governments should do the opposite of business cycles, and government
should get involved-nationalize; raising taxes, having surplus, as well as purchasing power…
Having the money to create footprint-activity. And within this predicament of pandemic, its
underlying matters would not be fixed without solutions for healthcare (priority- who seem
to be receiving a fraction within the so called ‘Marshal Plan’). Furthermore, to take care of
workers who are suffering major job losses, where authority and certain factors are weighing
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towards the big corporations - In specific; the wall street corporation side. As the merrily
important sectors aren’t considerably part of the big four areas considered (like
healthcare/labor relation).
The US; rigid individualism, considerably being Neo liberal, could show its clash with concepts
of Nationalism (Yael Tamir) – small state, shows more of a network approach, that has the
ability with all types and basis of negotiation (capitalism). Arguing and worrying of keeping
people safe and healthy, providing for healthcare workers in the many states, as well hospitals
to keep running in the proper manner. Also, mentions of high importance towards dealings
of negotiations and differentiation between institutions (what economic decisions to make);
in order to avoid tension or moral hazard; bad economics. As well as sovereignty matters with
who’s sitting on the table (national governments); which should be made up of the people
that intend to be the more consistent (Friedman,1963). As the democrats argue that
economics should start with demand, in regards to consumer’s households, putting through
checks into people’s pockets, which is basically the importance of the people. The main
matter on the rise is negotiations whether who and what sectors are of higher importance;
whether being the big corporations with their buy backs, or the people, workers, employees
to be able to have a fair share. In this argument, we see some sort of relation with ‘social
market capitalism’ as the US adapts to concepts where the consumer is always right in its
culture while comparing it to others whom seek ‘economic equilibrium’. As they look for
control, on national levels; ongoing talks stressed on politicians, to maintain coordination,
shows some sort of a hybrid model in saving the economy and its many sectors from
drowning. Relating to theorist Hallinsas, as the state should be involved in making the right
choices in the decision making process.
In times of a paradigm of such, the concept of regime arbitrage tends to be present, with
different shifts happening or occurring with environmental standards as well as to lower
standards of the host governments. For all, a triple bottom line approach must be near, for
finance recording, to help organize reporting agencies in order to have matters achieved as
efficiently and effectively with state intervention.
Some private sectors around the world are having more money or capital than central banks,
and if a currency got to the extreme up or bottom of its agreed channel, the central bank
didn’t have enough money to protect or buy the currency when its lower. In that case they
can bankrupt the central bank. And with economist Paul McCulley, mentioning severe
spending is needed to fight the pandemic.
-The concept of marginal utility comes in, value for money (Pareto, 1984). Within
economics, you look at what is good for the whole of society. Adapting to a nationalistic
approach, having some utility for some people, with different policies on the rise within this
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pandemic and shifting paradigms; might be helpful for some and painful for others. As long
as it helps the majority, this could be what classical economics is about. So a certain degree
of utility must be present, however with criticism of state intervention. The issue with classical
economics, is it tends to forget politics in economics. Hence, it is hard to do economics
without politics. However, with a world pandemic, there is a rise in degree of uncertainty.
Policy makers, should be making intense considerations in their decision making process (US
tend to lobby Politian’s hard) also in order to enhance fiscal/tax processes to reduce the
uprising predicaments; while making more rational choices.
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Reference list
Center for American Progress. (2020). Center for American Progress. [online] Available at:
https://www.americanprogress.org/issues/security/news/2020/03/26/482287/lessons-
united-states-international-economic-responses-coronavirus/ [Accessed 9 Apr. 2020].
Higgins, T. (2020). Here’s everything the federal government has done to limit the economic
destruction of coronavirus. [online] CNBC. Available at:
https://www.cnbc.com/2020/03/23/trump-fed-congress-government-efforts-to-contain-
coronavirus-economic-impact.html.
Mulder, N. (n.d.). The Coronavirus War Economy Will Change the World. [online] Foreign
Policy. Available at: https://foreignpolicy.com/2020/03/26/the-coronavirus-war-economy-
will-change-the-world/.
The Editorial Board (2020). Private Industry Mobilizes Against the Coronavirus. [online] WSJ.
Available at: https://www.wsj.com/articles/private-industry-mobilizes-against-the-
coronavirus-11585091775 [Accessed 9 Apr. 2020].
Tisdall, S. (2020). Power, equality, nationalism: how the pandemic will reshape the world. The
Observer. [online] 28 Mar. Available at:
https://www.theguardian.com/world/2020/mar/28/power-equality-nationalism-how-the-
pandemic-will-reshape-the-world.
Wimmer, A. (2019). Why Nationalism Works. [online] Foreign Affairs. Available at:
https://www.foreignaffairs.com/articles/world/2019-02-12/why-nationalism-works.
Cohen, N., 2020. Why Nationalism By Yael Tamir – Review. [online] the Guardian. Available
at: <https://www.theguardian.com/books/2019/feb/12/why-nationalism-yael-tamir-review-
liberalism-globalism#img-1> [Accessed 15 April 2020].
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Introduction
In the time of economic crisis, there has often been seen shifts in the current economic
paradigm. Mainly a neo-liberal, small state with theorists such as Smith, Hayek and Friedman
have been switched out to big state interventionists such as Keynes and Krugman. These shifts
have come in cycles, when the economy is booming the mindset is usually more neo-liberal,
meanwhile, in crisis, people tend to look at the state for security (Sitkin, 2011).
The financial crisis of 2008 did not change the recent paradigm from being neo-liberal.
However, as this pandemic that is now affecting the economy of the whole world. One could
assume that Keynes' theory of state intervention will become more popular again. What this
means is that during the recession, the state will try to spark the economy again by
implementing government actions such as lowering interest rates to promote private
investments and increasing public spending. Thus, creating job opportunities and stimulate
growth. Why this is important in the corona discussion is because the spark that will ignite
the economy again could be seen from different perspectives: a green perspective and a fossil
perspective.
Pro-Green arguments
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However, there have been numerous reports from all over the world that the climate has
been changing during this global lockdown. There is evidence that pollution rates have
dropped significantly in large cities as citizens are staying indoors (Wright, 2020). The water
has been clearer since no boats are roaming around and there is evidence that air around
major Chinese cities has been cleaner since fewer emissions are contaminating it (Jones,
Brown and Palumbo, 2020). As Dr Joaquim Vieira Ferreira Levy, states in an article by Vetter
(2020), that "A crisis like this brings to people's minds that maybe the risk we have been
talking about with climate change is not so far-fetched". Meaning that the environmental
crisis has been overlooked and that this crisis now opens peoples' eyes for the possibility that
the world has to change.
Con-Green Arguments
As time is of the essence, too do this quickly is a priority, and when this has been done before,
states have issued economic simulation packages as fuel for businesses to run on. After the
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2008 crisis, the Chinese state-issued economic support, which enabled the market to recover
in a relatively short period. This was done by supporting existing businesses that already was
ready to run and be efficient (Tienhaara, 2020). People who had worked in the industry before
could go back doing the same thing, and nothing changed as the economy returned to normal.
Investing in uncertain technology and training workers into new jobs would have demanded
even more resources to be used. Therefore, one could argue that the deficits would be even
more significant if the pursuit of a greener economy would have been implemented. In the
current situation, there are even further incentives for the state to do the same thing as in
the last crisis as the oil price, which affects a large part of the world's businesses have dropped
(Crist, 2020), further enabling this quick and cheap recovery option, compared to starting a
global R&D department where almost every business-sector would have to restructure.
What this says is that the fundamental human nature is what will drive the economic
simulation to be based on existing technologies and industries. This goes along with what the
precautionary principle says when faced with an option, the best one is the one with the least
risk to it (Sitkin, 2011). As mentioned above, facing the different options that are a quick and
"easy" or ones that take more effort, it could be argued that the quick and easy will be the
one to pursue, even though it may not be beneficial in the long run.
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Conclusion
As mentioned above, the economy has gone through cycles where the current economic
paradigm often shifts in times of crisis. Therefore, as the coronavirus is putting the world into
a recession, one could assume that the state will gain more trust, compared to recent years,
and be expected to step in with supportive actions. Either the state distributes economic
simulation packages in the form of that they are supporting existing businesses and in that
way gives people their old jobs back. Otherwise, the state takes advantage of this opportunity
in a time of crisis to expand into sustainable businesses, meaning they will create stimulation
for the economy with new jobs and at the same time deal with the significant threat of the
climate crisis.
Going with the first option will potentially repair the economy to its normal state. However,
as it is with the usage of finite resources, it trades the solution of one short-term crisis for the
solution of the overall climate crisis. Even though it can seem to be a good idea to recover
quicker from this economic crisis, there has not been a better time to pursue sustainable
businesses than now. As drastic changes have to be made to deal with climate change, it could
be seen as doing it now when there is already a recession could be a strategic choice. The
investments into green businesses can stimulate the economy as beneficially as existing
businesses and at the same time, save the future. The question will be regarding this actually
will be done as the rational choice would be to go with existing knowledge where there is less
uncertainty. Another factor is that the world divided into emerging markets and developed
countries have different prerequisites to be able to implement this change. However, as the
corona-discussion is evolving, the climate change is something that is highly debated, and
with a higher awareness one can only hope for risk-taking decisions in order for a sustainable
future.
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Bibliography:
Crist, M., 2020. Opinion | What The Coronavirus Means For Climate Change. [online]
Nytimes.com. Available at:
<https://www.nytimes.com/2020/03/27/opinion/sunday/coronavirus-climate-change.html>
[Accessed 13 April 2020].
Giddens, A., 2008. The Politics Of Climate Change: National Responses To The Challenge Of
Global Warming. London: Policy Network.
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Tienhaara, K., 2020. Coronavirus And The Economy: We Need Green Stimulus Not Fossil Fuel
Bailouts. [online] The Conversation. Available at: <https://theconversation.com/coronavirus-
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April 2020].
Vetter, D., 2020. How Coronavirus Could Help Us Fight Climate Change: Lessons From The
Pandemic.[online]Forbes. Available at:
<https://www.forbes.com/sites/davidrvetter/2020/03/30/how-coronavirus-could-help-us-
fight-climate-change-lessons-from-the-pandemic/#47aee95f5abc> [Accessed 1 April 2020].
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Wright, R., 2020. There's An Unlikely Beneficiary Of Coronavirus: The Planet. [online] CNN.
Available at: <https://edition.cnn.com/2020/03/16/asia/china-pollution-coronavirus-hnk-
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