Friday 10 April 2020

The basic rules of Corona virus economics.


 

 1. If government and central bank dish out freshly created money to households and/or firms in trouble, that will result (all else equal) in a bloated stock of base money (aka “government debt”) in a year or so’s time, which will have to be reined in via tax increases, and/or interest rates will have to be artificially raised. (As MMT has explained, base money and government debt are pretty much the same thing.)

2. It’s possible the latter new money could stoke inflation BEFORE the year is out, though given the lack of anything to spend money on because so many retail outlets have closed and airlines are grounded, it’s a doubtful that new money will stoke inflation in the next year or so.

3. Rather than go for the latter sudden rise in taxes and/or interest rates in a year’s time, it’s preferable, as far as possible, to raise taxes NOW. In effect that means the better off pay for the expanded unemployment benefit bill NOW.

4. Also, and again, so as to avoid the latter spike in taxes and/or interest rates in a year’s time, it is desirable to minimise the above handouts in as far as that’s compatible with everyone having at least the basic essentials. I.e. handouts for firms are not a good idea because the free market has perfectly good solutions for that problem: basically debtor firms go bust and get taken over by those with cash to spare, and/or creditors do a bit of debt forgiveness and/or grant longer periods over which to repay debts.


1 comment:

  1. Richard Murphy has advocated a whole list of conditions for gov bailouts of businesses,most regarding workers pay and conditions,bannning off shore tax evasion,limits to CEO pay/dividends and for the gov take a 25.1 % shareholding,just to deter the freeloaders and pay those in real need. Sounds about fair to me https://www.taxresearch.org.uk/Blog/2020/04/14/bailouts-should-be-subject-to-conditions-and-most-especially-so-in-the-case-of-bigger-businesses/

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