The first is the way in which governments have belatedly swung behind exhausted central banks in a massive co-ordinated support scheme for economies looking into the abyss of another depression.
The absence of active fiscal policy after the financial crisis was a key reason we ended up trapped in a low-growth, low-inflation doom loop for the past 12 years.
The scale of the fiscal support packages already unveiled – and there will be many more – is staggering. At 14pc of GDP in the world’s four biggest economies, up from 3pc last year, the stimulus is already 1.6 times that employed in 2009. In the US, the budget deficit is forecast to reach 24pc this year, its highest level since 1942. It is the combination of this fiscal largesse with the willingness of central banks to fund it to infinity that is ringing inflationary alarm bells.
The return of fiscal activism is a victory for so-called modern monetary theory, the idea that government spending, not interest rates, should be the principal tool to achieve full employment and stable prices. At its heart is the belief that there are no limits on how much a government can spend as long as it issues and borrows in its own currency. The only effective constraint, as long as you are prepared to accept the end of central bank independence, the politicisation of spending and an erosion of institutional credibility, is inflation.
The second driver, and the reason why all the above are probably inevitable, is the rise in inequality that technology, globalisation and the concentration of corporate power have triggered in recent years.
These trends were evident even before the financial crisis but the single-minded focus on monetary policy has accelerated them since, culminating in populism, protectionism and growing pressure on what Morgan Stanley calls tech, trade and corporate titans. Now coronavirus is accelerating all of these inflationary impulses. Globalisation is giving way to “slowbalisation” in a world that’s increasingly looking to close national or regional borders.