“Building back better”: economic growth, stability, and fairness

Aims of the course

This course aims to:

Provide you with a deeper analytical understanding, and with relevant empirical evidence, to assess the prospects for economic progress (“building back better”) in the aftermath of the major shocks which have affected the world economy since the beginning of the 21st century, namely the Great Financial Crisis (GFC) of 2008-09 and ensuing recession, the 2020-21 COVID pandemic, and the 2022 war-related disruptions to energy prices. Specifically, you will acquire:

1. A historical perspective on the performance of the world economy and key countries within it, as measured by a number of key statistics;
2. An appreciation of the debate about developing better measures of economic activity and of human development, capturing sustainability, equity, and the “revalorisation” on non-market activities;
3. An understanding of macroeconomic stability, and of the current challenges facing monetary and fiscal policy-makers as they wrestle with inflationary pressures, debt overhangs, increased expectations of government support, and – via crypto-assets – the possibility of major changes in the structure of the financial system;

Content

The Great Financial Crisis (2008-09), the COVID Recession (2020-21), energy price and supply volatility since 2022 – all against the increasing realisation that the global economy has been drinking at the environmental last chance saloon, and that global and domestic inequalities are a serious concern which cannot be wished away by “trickle down” alone - have raised fundamental questions about the purpose and meaning of work, the relationship between material prosperity and wellbeing, and the importance of defining and achieving fairness.
Moreover, current geopolitical instability and the prospect of a fragmentation of the global economy into mutually isolated and hostile blocs have made economic interdependence on a global scale appear much less attractive – companies and governments may increasingly “friendshore” rather than “offshore”, which would slow down or even reverse the most significant economic feature of the last three decades, namely the globalisation of the world economy.
The course provides an economic overview of the debate about “building back better”. It first looks at the institutional and economic characteristics of a previous episode of prolonged economic prosperity accompanied by social progress – the 1945-1973 Reconstruction Years and Golden Age across America and Western Europe. We define a number of traditional key indicators of economic performance, notably Gross Domestic Product and National Income, as well as measures of productivity, employment, inflation and internal and external debt), and study their behaviour over time, to get a measure of the size and distinctive features of recent shocks.

We examine the causes, macroeconomic implications, and possible policy responses to the switch, within little over one year, from a deflationary environment in which central bank had repeatedly undershot their inflation targets despite using a range of “unconventional” policy instruments to stimulate spending, to the current surge in inflation rates which – by the winter of 2022-23 – had returned inflation to levels not seen for over forty years. Specifically, we shall explore the “inexorable and mysterious trade- off” between inflation and unemployment (also known as the Phillips Curve), and its implications for monetary policy and for central bank independence.

Beyond the acknowledged need to adapt traditional economic management instruments to deal with the peculiar nature of recent shocks, we also document the widespread if often unfocussed aspiration for a different model of economy and society, a “great reset” of both work-life balance and the meaningfulness and sustainability of human work.

Presentation of the course

The course consists of ten 90-minute lectures (with a five-minute break halfway through!). You will have reviewed in advance the relevant sections of the readings and other materials indicated in the “Resources List” (see below in this course outline), and made available via the course Moodle VLE. At appropriate points during the lecturer’s presentation, you will be invited to join short “break-out” group discussions with your fellow participants, exploring further a key point just introduced in the discussion, and then sharing the outcomes of those discussion with your fellow course participants. The lectures will also highlight concepts, evidence, and resources of particular relevance to each of the suggested “Essay Topics” (see below in this course outline).

Class sessions

1. The Age of Beveridge and Keynes: the post-war social-democratic order
The course begins with a historical retrospective of successive “political economies” – the set of generally agreed objectives, institutions, and policies by which societies are governed and pursue given objectives. This review begins with the “Golden Age of Capitalism” (1945-1973), a previous time when America and its Western European allies aimed to “build back better” after the economic hardship of the inter-war year and the war ravages of World War II.

2. The Age of Hayek and Friedman: the neo-liberal order
By the early 1970s, the post-war social-democratic order was challenged and eventually replaced by a “counter-revolution” built on a renewed optimism in the desirability of market outcomes, and much more sceptical understanding of what government can achieve. This “neo-liberal order”, pioneered by Margaret Thatcher’s administration in the United Kingdom (1979-1990), and Ronald Reagan’ presidency in the United States (1981-89), acquired global relevance in the 1990’s, as the “Washington Consensus” promoted by the IMF and World Bank.

3. The End of the Neoliberal Order?
Far from representing a teleological fulfilment, an “end of history” with the gradual spread of representative democracy and a small, strong state as the political economy demonstrably outcompeting its alternatives, the neo-liberal order has been gradually undermined by a variety of pressures and unfulfilled expectations. This lecture examines how these vulnerabilities built up over time, undetected or underestimated, during the period of apparent stability and progress from the late 1980s to the middle of the first decade of the 21st century, the period known as the “Great Moderation”.

4. Macroeconomic stabilisation for unconventional shocks
The Great Financial Crisis of 2008-9, the COVID shutdowns of 2020-21, and (to a lesser extent) the cost-push inflation of 2022 have been seen as “unprecedented”, whether because of the nature of the shock, the structure of the economy upon which they hit, or both. The resulting challenges for monetary and fiscal policy are discussed in this class.

5. The Great Reset: COVID and the experience of work
Is work best understood as “a place we go to”, or “something we do” from wherever we happen to be? Is flexicurity a possibility, or is the choice increasingly between relatively secure, well paid, full time work, and “gigs”? Is there enough work to go around, and if not, do we need other mechanisms to ensure not just survival but freedom (in Amartya Sen’s sense) for all? We examine how the experience of working from home, furlough etc. has revived old questions and raised new ones.

6. Supply, demand, relative prices, and the price level
Current discussions of inflation make it clear that Milton Friedman’s simple and powerful description of “too much money chasing too few goods” does not do justice to the complexity of underlying drivers of inflation. Students are introduced to a simple diagrammatic representation of the relationship of aggregate supply and aggregate demand to the inflation rate, and to the most significant shocks which, by shifting either curve, determine the economy’s level of economic activity and inflation rate.

7. Monetary Policy, Aggregate Demand Management, and the Phillips Curve.
In this class, we first discuss the costs and consequences of inflation (and, indeed, deflation), distinguishing carefully between its impact on the effectiveness of market signals and the “anchoring” of price expectations, its re-distributional effects on both incomes and wealth, and the more insidious impacts on social and political cohesion.
Next, we introduce central banks – the public institutions which take the most directly relevant policy decisions affecting the behaviour of the price level. The emphasis is on identifying and understanding the fundamental ideas behind central bank “instruments” and “rules” across time and in different countries, identifying the common elements behind different terminologies and institutional arrangements, and placing the current (summer 2023) challenges faced by monetary policy in a historical context, which makes today’s situation easier to interpret.

8. Are the Days of GDP Accounting Counted?
Since at least Fred Hirsch’s analysis of the “social limits to growth”, and Tibor Scitovsky’s of “the joyless economy” (both in the 1970s), a number of critiques of Gross Domestic Product as measure of a country’s success have been developed, focussing in particular on the lack of explicit consideration of inequality, environmental sustainability, and quality of life (as opposed to consumption). More recently, a major underpinning of GDP growth – international specialisation on a global scale, and a correspondingly extreme degree of interdependence – has been questioned as a cause of a country’s “vulnerability” to geopolitical instability. “Building back better” requires reliable indicators of what we are trying to achieve, and this lecture explores the current debate on alternatives to GDP-chasing.

9. Sustainability and Fairness
This class is dedicated to a more detailed analysis of trends in sustainability and inequality, two dimensions of social performance which have acquired increasing recognition and salience.

10. Is There an Alternative?
The governments of the Golden Age approached the great social questions of that time with the confidence borne out of their success in governing complex and highly stressed war economies; in contrast, today’s governments are the inheritors of a collapsing neo-liberal order and often of dysfunctional democratic politics. Can empowered consumers and socially responsible corporations come to the rescue?

Learning outcomes

The learning outcomes for this course are:
1. Familiarity with the main conceptual and statistical issues involved in measuring economic performance;
2. An understanding of the policy instruments and policy-making processes available to governments in pursuing economic stability and fairness;
3. Insights into the historical phases of “consensus” in the political economies of key countries and world regions, from the post-war social democratic consensus to the neo-liberal order, to the current decline of that order, and difficult transition to a yet-to-be shaped new consensus able to handle the huge social and environmental challenges facing us.

Required reading

OECD (2021) “Building Back Better: a Sustainable, Resilient Recovery after COVID-19”, Organisation for Economic Co-operation and Development. Coyle, Diane (2015) GDP: a Brief but Affectionate History, Princeton University Press [ISBN: 9780691169859]

Winston, Andrew and Paul Polman (2021) Net Positive: How Courageous Companies Thrive by Giving More than They Take [recorded talk for Green Book Club; you may also want to see the book by the same title, or its accompanying Net Positive Manifesto in the Harvard Business Review].

Bell, Torsten a.o. (2022) Inflation Nation. Putting the Spring Statement 2022 in Context, Resolution Foundation.

Typical week: Monday to Friday

Courses run from Monday to Friday. For each week of study, you select a morning (Am) course and an afternoon (Pm) course. The maximum class size is 25 students. 

Courses are complemented by a series of daily plenary lectures, exploring new ideas in a wide range of disciplines. To add to the learning experience, we are also planning additional evening talks and events.

Evaluation and Academic Credit 

If you are seeking to enhance your own study experience, or earn academic credit from your Cambridge Summer Programme studies at your home institution, you can submit written work for assessment for one or more of your courses. 

Essay questions are set and assessed against the University of Cambridge standard by your Course Director, a list of essay questions can be found in the Course Materials. Essays are submitted two weeks after the end of each course, so those studying for multiple weeks need to plan their time accordingly. There is an evaluation fee of £75 per essay.

For more information about writing essays see Evaluation and Academic Credit.

Certificate of attendance

A certificate of attendance will be sent to you electronically after the programme.