Given the new environment, what economic policy choices will governments and central banks have to make?
Let us make the likely assumption that the new economic environment will be a lasting situation of inflationary pressures and scarcity ( labour , energy, commodities, etc.). What economic policy choices will governments and central banks in OECD countries then face? Should the inflation target be changed to take into account higher inflation on average, or are the costs of doing so (loss of credibility, financial instability, etc.) too high? If real interest rates are higher, given the reaction of central banks and financial markets to inflation, how can public debt sustainability be ensured when, moreover, public spending needs (energy transition, industry, defence , education, healthcare, etc.) are very high? Can public services be modernised ? Should the tax burden be increased, for example by taxing unjustified rents? These questions do not arise, of course, if central banks accept higher inflation without reacting; How should the burden of higher commodity prices, if it is to be permanent, be shared between households, governments and companies? Eventually, government support will have to disappear as the government will have to ensure the sustainability of its debt. This leaves the choice of sharing the burden between employees and companies; The rise in energy and food prices etc. increases income inequality between households. So what is the best way to correct these new inequalities: freezing certain prices? Public transfer payments to low-income households (financed how)? Increasing low wages?