Markus Brunnermeier - The Resilient Society

The
RESILIENT
SOCIETY

The Resilient Society
Copyright 2021 by Markus K. Brunnermeier

All rights reserved. Printed in the United States of America. No part of this book may be used or reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in articles and reviews. For information, contact the publisher.

Published by Endeavor Literary Press
P.O. Box 49272
Colorado Springs, CO 80949
www.endeavorliterary.com

ISBN Print Version: 978-1-7374036-0-9
ISBN Ebook: 978-1-7374036-1-6

Cover Design: James Clarke (jclarke.net)

Published with support from the
Peterson Institute of International Economics.
www.piie.com

The
RESILIENT
SOCIETY

MARKUS K. BRUNNERMEIER

Foreword

A s a result of the Covid-19 crisis, the world must address a critical question: How can societies be reshaped so that we can face inevitable, severe shocks with resilience? To answer that question, this book proposes a shift in our mindset and our social interactions. Rather than lethargically avoiding risks, we should proactively develop societies that are resilient to adverse shocks.

The Covid-19 pandemic has provided us with an opportunity to learn how to be better prepared for future crises, on a national and international scale. This book is my take on those lessons, specifically related to the economic challenges that societies around the globe now face and how we can prepare for the next shock. It presents an analysis of the immediate and long-term pandemic impacts on societies.

The aim of the book is to present the concept and principles of resilience in a structured way, and to make them available to a broader public. However, the book makes no attempt to be all inclusive, comprehensive, or fully rigorous. Rather it raises intriguing perspectives designed to encourage readers to think. Hopefully, the book will stimulate discussions among politically interested citizens who are keen to build a more resilient society.

Part I of the book outlines the concept of resilience and how our social contracts could be redesigned to make societies more resilient to unexpected shocks. Part II outlines four core elements of resilience management using the Covid-19 pandemic as the primary example. Part III addresses future macroeconomic challenges, such as scarring effects, high debt levels, and inflation. Part IV emphasizes global challenges. Each chapter stands on its own and can be read without reading the earlier chapters.

I draw from the insights of others, but the book presents my own analytical summary of the main tradeoffs and should not implicate others. In fact, this is a work in progress. Events are still unfolding. Hence, the book should be read as an interim synthesis.

Markus Brunnermeier

Princeton, June 2021

Acknowledgements

S pecial thanks go to Thomas Krn. Without his help and dedication, this book would have never found its light. His help was essential.

I have gained many insights from the top scientists and economists who presented at the Princeton webinar series Markus Academy that I started in March 2020. Special thanks go to more than a dozen Nobel Prize laureates including, Paul Romer, Angus Deaton, Joe Stiglitz, Michael Kremer, Paul Krugman, Michael Spence, Bob Shiller, Jean Tirole, Chris Sims, Bengt Holmstrm, Bill Nordhaus, and Esther Duflo. I also wish to thank epidemiologist Ramanan Laxminarayan and historian Harold James. Im grateful for the following top economists: Torsten Slok, Nellie Liang, Olivier Blanchard, Tyler Cowen, Joshua Gans, Penelopi Goldberg, Hyun Song Shin, Dani Rodrik, Daron Acemoglu, Jeremy Stein, John Cochrane, Larry Summers, Gita Gopinath, Darrell Duffie, Lisa Cook, Ken Rogoff, Raj Chetty, Veronica Guerrieri, Erik Hurst, Arvind Krishnamurthy, Richard Zeckhauser, Esteban Rossi-Hansberg, Luigi Zingales, Robert Hall, Emily Oster, Stephen Redding, Jason Furman, Nick Bloom, Adam Posen, Charles Goodhart, James Stock, Andy Lo, Lasse Pedersen, Monica de Bolle, Ivn Werning, Amit Seru, Alan Auerbach, Robin Brooks, Gary Gorton, Emi Nakamura, Antoinette Schoar, Alberto Cavallo, Philippe Aghion, Edmar Bacha, and Viral Acharya. My writing greatly benefitted from several current or former central bankers, including Bill Dudley, Philip Lane, Arminio Fraga, Raghuram Rajan, Jerome Powell, and Agustin Carstens. My gratitude also goes to Eurogroup President Paschal Donohoe and finance experts Barry Ritholtz and Liz Myers. Im grateful for tech experts like Eric Schmidt. Special mention goes to Delaney Parrish and Kelsey Richardson who helped me establish the Princeton webinar series during challenging times.

Jean-Pierre Landau deserves special mention for his detailed, constructive feedback. I received helpful feedback from Joseph Abadi, Kartik Anand, Sylvain Chassang, Martin Mhleisen, Dirk Niepelt, Pietro Ortoleva, Jean Pisani-Ferry, Rohit Lamba, Ricardo Reis, Yannick Timmer, Sigurd Wagner, Jeromin Zettelmeyer, Hans-Helmut Kotz, and a reading group at the Bundesbank, as well as from four anonymous referees at the Peterson Institute for International Economics.

I also want to express my deep gratitude to Christina Xu and Mohan Setty Charity who diligently went through each chapter to improve early drafts. Don Noh deserves credit for collecting the data and creating the graphs in the book. I wish to thank my editor, Glenn McMahan, and to James Clarke for his cover design and typesetting.

Finally, I would like to thank my wife, Smita, and my two daughters, Anjali and Priya, for their support during the Covid-19 period.

Introduction

T he Covid-19 pandemic has made us feel fragile. As individuals, we discovered that we could suddenly be hit by a rapidly spreading, unknown disease. It upended our perception that medical progress would prevent such events. Societies around the world faced disruptions on an unprecedented scale. The pandemic paralyzed recreational activities, stretched public services to the limit, left the poorest and most vulnerable unattended, turned our homes into workplaces, stopped our kids from going to school, disrupted our family lives, and forced us to connect with friends through screens. And we lost many lives.

The pandemic has also given us reason to be confident in the power of medicine and technology. Indeed, we can only marvel at the speed and efficiency of vaccine discovery, which occurred less than a year after the virus was identified. But what about social fragility and vulnerabilities? Will our societies quickly recover, or will they bear permanent scars? Most importantly, will they be able to overcome similar shocks in the future? This book seeks to address that question.

The key concept in this book is resilience . The term refers to an ability to rebound, which is different than the idea of robustness , which is an ability to resist. Sometimes robustness is not the best way forward. Resilience is about being able to weather a storm and recover, as described in the famous poem by Jean de La Fontaine titled The Oak and the Reed. The oak is robust. It is mighty and looks indestructible in the face of normal winds. By contrast, the reed is resilient. Even light breezes bend the reed. But when a strong storm erupts, the reed declares: I bend but do not break.

That phrase incorporates the essence of resilience. The reed bounces back when the storm is over. It fully recovers. The robust oak can withstand strong winds, but it breaks when the storm becomes too severe. Once it has fallen, no recovery is possible. Its lack of resilience prevents restoration. The reed, always in motion, might look vulnerable, but it is much more resilient than the oak.