On the Edge of Times: The Rerun of the 1940s and the 1970s

By György Matolcsy

The author shares his insights in response to articles published in globally renowned journals by the top economists, scientific experts and opinion leaders of our time. They point the way towards not only long-term sustainable and viable systems, but also a completely new way of thinking. He invites the reader to regard the world economy as a complex living system where cycles, patterns and fractals work together and the rules of the Quantum World are the Power Laws. The author challenges all the extremes of liberal economic thinking in order to accelerate the transition to a sustainable global economy based on new sustainable economics. All his arguments can be summarized in the title of the book: we live on the edge of times, where the “50-year” and “80-year” cycles tend to shape the 2020s, our time.

György Matolcsy has been serving as the Governor of Magyar Nemzeti Bank, the central bank of Hungary, since 2013. He is also a member of the Fiscal Council of Hungary. Prior to that, he was Minister of National Economy between 2010-2013 and Minister of Economic Affairs between 2000-2002. Between 2002-2010 he was director of the Institute for Growth and of the Privatisation Research Institute from 1995 to 2000. He was a member of the Board of Governors at the European Bank for Reconstruction and Development (EBRD) representing the Hungarian Government between 1991 and 1993. In 1990, he served as political state secretary and the personal economic advisor to Prime Minister József Antall. He began his career in the Ministry of Finance in 1978, then he joined the Financial Research Institute as scientific researcher in 1985. As the economic and finance minister of the Orbán government, he was instrumental to the turnaround of the Hungarian economy by introducing a tax reform and completing the most successful fiscal consolidation within the EU. As the governor of MNB, he solved the credit crunch of the financial system and also swept out the CHF denominated FX loans of Hungarian households. He graduated at Karl Marx University of Economics in 1977 and obtained his Doctorate degree in 1984. György Matolcsy is a frequent lecturer at top foreign and Hungarian universities. He is honorary member of Fudan Development Institute (FDDI) of Fudan University and of the International Advisory Board of Shanghai Forum, and he is honorary doctor at the University of Debrecen and the University of Kaposvár. György Matolcsy is the author of several hundred articles, studies and books. His latest book, Economic Balance and Growth was published in 2021.

• Language: English
• Publisher: Publishdrive
• Release date: Dec 14, 2022
• ISBN: 9789635731695

Book preview

György Matolcsy

On the Edge of Times

The Rerun of the 1940s and the 1970s

PAB Logo

Also by the Author, 2000–2022:

In preparation: New Sustainable Economics (Global discussion paper). (Baksay, Gergely – Matolcsy, György – Virág, Barnabás).Planned date of publication: Budapest, 2022, The Central Bank of Hungary.

* * *

Infinite Life (Draft for global debate). Budapest, 2021, Pallas Athéné Könyvkiadó Kft.

Economic Balance and Growth, 2010–2019. From the last to the first. Second, revised edition, Budapest, 2021, The Central Bank of Hungary.

The American Empire vs. The European Dream: The Failure of the Euro. Budapest, 2019, Pallas Athéné Könyvkiadó Kft.

Economic Balance and Growth. Consolidation and stabilisation in Hungary, 2010–2014. Budapest, 2015, Kairosz Kiadó on behalf of The Central Bank of Hungary.

* * *

Long-term sustainable econo-mix (Virág, Barnabás ed.).Budapest, 2019, The Central Bank of Hungary (co-authored by Matolcsy, György).

György Matolcsy

On the Edge of Times

The Rerun of the 1940s and the 1970s

György Matolcsy

On the Edge of Times: The Rerun of the 1940s and the 1970s

2022

First published in print, 2022

Followed by this e-book edition, 2022

Publisher: PALLAS ATHÉNÉ KÖNYVKIADÓ KFT.

Úri utca 21., 1014 Budapest, Hungary

Dr. Katinka Cseh, CEO

www.pallasathenekiado.hu

Copyright © György Matolcsy, 2022

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage and retrieval system, without permission in writing from the Publisher.

Cover background © János Fajó: Két háromszög [Two Triangles], 2003

Cover design by Anita Kónya, Copy & Consulting Kft. and László Csaba Körtvélyesi

Printed in 2022

by Copy & Consulting Kft.

Budapest, Hungary

Zsolt Gál, CEO

Ebook by

Bulaja naklada

Zagreb

ISBN 978-963-573-160-2 (print)

ISBN 978-963-573-161-9 (epub)

ISBN 978-963-573-162-6 (mobi)

Table of Contents

Acknowledgements

Foreword

PART I: Cycles and Patterns

1. The 50-year and 80-year Cycles

Mayflower 2.0

At the end or the tailing end of it

It is wartime economics, but another kind

The 1970s and 1980s are here

The 50-year American parallel has gone global

The new Roaring Twenties

Roads to the future

The oil industry’s woes are the writing on the wall

We are still in 1940, not in 1942

What if…?

We are not prepared for the dramas of the 2020s

The three major trends of 2022

Inflation will be back, just like in the 1970s

Inflation is the price to be paid for the new cold war

Spikes are coming, not runaway double-digit inflation

2. The Patterns of the Crisis

Events, events and events

We are playing with water, not fire

The time has come

The new tulip mania will also burst

Coming soon…

How the global economy works in 60-year cycles

Rocketing energy prices are the harbinger of the future

Dragonflies are common, dragons are not

Higher but not runaway inflation is coming

Fears of durable inflation are justified

3. Freedom vs. Security

Freedom vs. security

Capitalism will be more diverse than it was before

A new global landscape

The new world of geopolitical risks

Productivity, productivity, productivity

A once-in-a-lifetime opportunity to buy bargains

The dawn of a post-service economy

More than scars, deep wounds will remain

4. Government and Growth

The third wave

Reducing public debt by unleashing growth potential

A new cycle has just begun

Survivors and ready-to-die corporations

More unorthodox measures are needed, not fewer

Yes, all key measurements are plain wrong

The decade of rare success stories is coming

We are on the Japanese path

Sometimes forecasting errors might be for the good

These are still the old bubbles

There are many coins with two sides

PART II: G2 vs. G-2

1. Beyond Western Exceptionalism

Western exceptionalism is over

Covid is the first wake-up call for the West

What will the West do next?

Western flaws have been exposed

When two archetypes meet

The future is not bipolar, it is multipolar

History is full of unintended side effects

Don’t fix what isn’t broken

Political cycles and innovation cycles intertwine

Two-track recovery: two types of government

2. Cold War 2.0

The proposal for a new cold war

This is a new yin/yang world

We need a new G2 world order

No one will win Cold War 2.0

Some politicians misunderstand their times

Appearances can be deceptive

We have entered the era of a war economy of a sort

Too big to pick a side

Hopefully more sophisticated warfare, not a war

The end of Western globalization

3. Roman Empire 2.0

Trajan in AD 100

Waiting for Hadrian

The Biden-Nixon parallel is right

Live and let live

Globalists have already lost at home

It is only the harbinger of the 2020s

We can see only one failing superpower

Economic thinking will stop Biden’s experiment

Even America cannot run supersized deficits for ever

Global recessions no longer come out of the blue

The Atlantic tectonic plates are shifting

It is the same, but different

Is this a sort of Japanification in the US?

4. China’s 200-year Marathons

200-year marathons

China’s economy enters the new world of the 2020s

China’s Covid pride is well deserved

The last Western kingdom

The sound of money is sound

We have entered a new economic era

Coronavirus is accelerating the rise of China

Just at the dawn of a new period

China is not a bubble, so it will not pop

A new power law

The changing map of geopolitics

China’s investment-led strategy is right

We all need to be fair, just and efficient

5. European Dilemmas

The top ten major trends in Europe of the last 20 years

Europe should change the rules of the game

The EU is far from its circular economy future

AI and oil

The great promise of the Abraham Accords

Do not stop worrying about public debt

Rational expectations are still possible

Italy’s unfinished business with the euro

Germany’s choice is Europe’s future

Italy needs a complete taxation overhaul

The German dilemma is deeply rooted

The time has come to use a double-edged sword

The last straw on the euro-camel’s back

Asians in the European Union

The European Dream is over

6. Beyond the European Dream

Europe enters permanent crisis mode

It is just the beginning for the EU

The EU’s unfinished business with the single market

Europe’s rare moment of rational thinking

The EU should look to the EU

Export optimism must revive

The roots of today’s problems

New European neutrality

A second chance for Europe

Help yourself by pursuing self-interest

The European game is over

Dolphins and whales

Consumers are the only game in town

The cycles of history matter greatly for Britain

The issue is not leaving, but arriving

France is the biggest winner of Brexit

Do not play power politics

The end of a mini-empire

Another kind of awkward truth…

Don’t blame the Germans…

Small is beautiful and efficient

Sine ira et studio…

It is all about identity

Gradualism vs. shock therapy

The best exit plan is not to fall into the trap

PART III: Money, Money, Money… Much More Money…

1. The Future of Money

The evolution of money

The future of money and the money of the future

A rerun of Bretton Woods might be coming

The transition from debt to equity

A basic personal equity and loan programme for all

A common future for three continents?

The transition has already started

This time the IMF is also different

Debt is still debt

The new dollar/euro decoupling

The anchor of all anchors

The time has come to ban crypto trading and mining in the EU

Innovation or regulation?

The time has come for targeted tools

Changes in regime always stir up inflation

CBDC will ease the pressure of inflation in the 2020s

Targeted means will be coming soon

CBDCs will come as game changers

2. The Future of Central Banks

Central banks should be given a CBDC mandate

Time is a scarce resource for central banks

The currencies of digital CBs will soon hit the road

Central banks should enlist in the climate war

Central bankers can and should remain risk-averse investors

Central banks have major roles in tackling climate change

New benchmarks are needed for central banks

Central banks need a new sustainability mandate

Why inflation targeting?

The bubble behind all the other bubbles

What large central banks can learn from smaller ones

It’s the brew that counts

Neither culprits nor saviours

Central bankers need optimism to restore trust

Central banks never run out of bullets

Central banks will continue to act in isolation

Central bankers should talk less

3. The Permanent Flaws of the Euro

The EU should admit the strategic error of the euro

A long-lasting tragedy of the Eurozone

The main barriers still remain for the euro

Another sort of U-turn is needed

It is not the EU’s rescue fund that matters

It is not only ethical, but strategic as well

Beware of Greeks bearing gifts

Liberals should return to pragmatism

Negative rate policies are not abnormal for the euro

Ending a period of financial nonsense

The ECB should embrace a multi-faceted mandate

We need different types of digital euro

CBDC: Europe should catch up with Asia

The American dilemma is global

Surprise, surprise, surprise

Many more shocks to come

A wartime-targeted stimulus programme is needed

Concerted efforts are needed

4. The Rise of the Budget

The rise of the budget

Both sides of the same coin

The case for substantial fiscal reserves

Neither institutions nor networks

A mixture of panic and a reasonable response

The Minsky Moment is coming

We should go an extra mile

We are heading for another kind of banking system

PART IV: Towards Sustainability…

1. The New Age of Discoveries

We live in the age of discoveries

There is life beyond GDP

We should go an extra mile with GDP

Learn from the 2020 GDP data

Uncertainty fuels creativity

Fragility is the essence of life

Demography still plays a major role in the future

A new deal for all of us

Politicians are afraid of the tech challenge

The transition to hybrid systems

Music has become part of the data-driven economy

It is digital transformation at top speed

2. Prosperity 4 All

Prosperity 4 all

Why the state is bigger and more active than ever

National competitiveness means a strong industrial base

Victory-shaped recovery with a pinch of salt

Political economy is back

Systemic changes are needed

All’s well that ends well

We are already on the digital track

Regulation is needed, not central planning

Appearances can be deceptive

3. The Sustainable Social Environment

Completely new economic thinking is needed

We badly need a green and sustainable recovery

Environmental risks are much larger than climate risks

New hypes might use some retro policies

Post-crisis recovery should focus on women

Weekly testing – simple as that

Lockdown plays Russian roulette with workers

The solution is in the middle

The unfolding new mantra

Wikipedia needs a complete overhaul

4. Restructuring via a Sustainability Path

Restructuring via a green and sustainable path

Transformational change is needed in green financing

The EU needs long-term sustainable solutions

Taxation is part of the solution

The time has come for sustainability taxation

The gig economy should go for a tax reform

Pension funds need to change course

Farming will once again be a family affair

Long-term quid pro quo for sustainability

Netflix and V4

Capital-heavy business models are back

First impressions can be deceptive

Reference List

List of Illustrations

Index

Acknowledgements

This is a unique book of dialogues between mainly Western liberal thinkers and one of their Central-European counterparts, who also happens to be the governor of the central bank of his country. All the initial articles – the majority of them were published in FT Opinion – proved to be well crafted and thoroughly researched, so not the facts but the approaches and arguments were at the very centre of our debate.

In my view, the gist of our debate can be regarded as a friendly fight between the former liberal and the rising sustainability approaches. Apart from the fact that a good deal of the initial articles covered sustainability issues, it is my understanding that these global challenges cannot and will not be solved in the framework of liberalism and liberal thinking.

In addition, our conversations can be considered as a clash between Western and Eastern, Asian arguments. As the Age of Western Empires – the last one might be the American Empire between 1945 and 2075 – slowly but surely comes to an end, the rising Age of Eurasia will be based on long-term sustainable visions, strategies, structures and technologies. This historical transformation badly needs a new school of economists and a new school of economics called New Sustainable Economics.

Against this background, I would like to thank my partners for their clear-cut and professional arguments: without strong liberal views, my objections could not be sharpened and hardened.

I would also like to thank my friends and colleagues in the National Bank of Hungary for their fact-finding missions and their analyses that supported my reactions and arguments.

I am extremely grateful to Norbert Csizmadia and Barnabás Virág for their critical and supportive remarks that all helped me to clarify