The Risk of a Second Wave of Post-Crisis Frailty in the World Economy

Abstract This article assesses the scope for economic recovery following the COVID-19 shock. A theoretical review looks at the interplay between the forces of aggregate demand and income generation, on the one hand, and distribution and finance, on the other hand. The role of the public sector is shown to be pivotal. But the injections/leakages framework proposed in the empirical analysis uncovers a disappointing configuration of global demand and policies. The public sector as a driver of demand, distribution and financial stability has been virtually removed. Instead, it was replaced by finance-led schemes that have caused stepwise decelerations in economic growth and increases in government financial constraints, crisis after crisis. On this basis, the prospects for a sustained global recovery after the pandemic look unmistakably grim, barring a radical reorientation of policies.