OPINION: Many countries are now engaged in various “wars”—some real, some metaphorical—that will lead to even larger fiscal deficits, more debt monetization, and higher inflation in the future.
NEW YORK —Inflation rose sharply throughout 2022 across both advanced economies and emerging markets. Structural trends suggest that the problem will be secular, rather than transitory. Specifically, many countries are now engaged in various “wars”—some real, some metaphorical—that will lead to even larger fiscal deficits, more debt monetization, and higher inflation in the future.
Climate change The global war against climate change will also be expensive—for both the public and private sectors. Climate-change mitigation and adaptation could cost trillions of dollars per year for decades to come, and it is silly to think that all these investments will boost growth. Pandemics and robotics We are also now waging a costly war against future pandemics. For a variety of reasons—some of them related to climate change—disease outbreaks with the potential to become pandemics will become more frequent.
These costs will remain large even if automation leads to a surge in economic growth. For example, supporting a meager universal basic income of $1,000 per month would cost the U.S. about 20% of its GDP. Fighting these five “wars” will be expensive, and economic and political factors will constrain governments’ ability to finance them with higher taxes. Tax-to-GDP ratios are already high in most advanced economies—especially Europe—and tax evasion, avoidance, and arbitrage will further complicate efforts to increase taxes on high incomes and capital .
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