Envisioning a new economic system after the transition from pandemic to endemic: Serbia's perspective

Abstract

In the last two and a half centuries, industrialization, propelled by a catalytic impact of free-market capitalism, has been contributing to prosperity and breaking the limits beyond all imagination that during the history inhibited the development of human potential. Unfortunately, neoliberal capitalism, as the last and most extreme variant of free-market capitalism, has shown some hidden fractures. After the Great Recession of 2008, the problems due to inbuilt fault lines and misconceptions erupted to the surface. Over the last two years, marked by the COVID-19 pandemic, the world economy has been passing through a complex crisis, a crisis within the spectrum of crises. Again, the flip side of a major success proved to be a major failure. The new virus simply magnified and accelerated doom and gloom in the economic system. The major strategic shifts such as climate crisis, structural crisis of capitalism, microbe mutations and superinfections, and, particularly, the Fourth Industrial Revolution, have contributed jointly to the disruption of incumbents in business, regulatory settings and society as a whole. Exponential change is the New Normal. The economic system is simply surrounded with exponentiality. Neoliberal capitalism has definitely hurt sustainability, along with renewability and inclusivity, of the global economic system and the entire planet. In a time of the explosion of systemic, climate and biological risks, a delicate and subtle issue has emerged as to how to adjust the existing system to exponential change conceptually, financially and operationally. In fact, the current economic system is not able to adequately respond to exponential challenges by transforming threats into opportunities. In times of the climate crisis, the pandemic is just the tip of the iceberg which, by the way, is melting away. The COVID-19 is not a perpetual virus. Someday the pandemic will end. In fact, the transition from pandemic to endemic is imminent. Accordingly, in the post-pandemic world key performance will be the capacity of a new economic system to respond positively to ever-increasing old challenges, in particular to the climate emergency and related issues. So, the green transition is an imperative of modern Economics. At the start of the pandemic, most governments relied on expansionary monetary and fiscal policies with the aim of relaxing the "fear of fear" (unspent savings and pent-up demand). During the crisis money pumping was about US$ 13 trillion on a global level. The continuation of this policy has pushed the world economy into an unstable mode because it leads to an increase in aggregate demand that largely exceeds the supply level, drives wage-price spirals and deepens other structural imbalances. In the context of extremely low or even negative interest rates, economic agents take an extra high credit risk and the state takes an unmanageable sovereign risk. Consequently, today's debt in many core economies is substantially higher than in any previous stagflation episode. When the inflation risk premium pushes interest rate hikes, public and private agents with an increasing debt burden and lower earnings face insolvency threat due to such a hawkish turn. Among many negative scenarios, overheating and stagflation followed by growing indebtedness are the most dangerous outcomes. Given today's ultra-loose and even costly anti-crisis core economic policies, the confidence in the "invisible hand" of the market and unconventional and experimental economic policies, praised by mainstream economists as a panacea for all imbalances, has definitely disappeared and may be easily turned into a pipe dream everywhere. There is not much time to respond to the New Normal. Humanity has less than a decade left until climate change becomes irreversible. The response should be prompt, comprehensive and compatible with exponential change. So, mitigation of a complex crisis requires the consideration of more radical ideas. Without a