The number of people who are homeless, in medical debt, and unable to work or make any money due to limited skillsets and COVID is astounding. These people need some type of immediate help, and if they don't receive it, the effects will be far more detrimental than the effects of fiscal stimulus.
And I think you're confusing monetary stimulus with fiscal stimulus.
> It doesn't matter how the money is distributed, it tends to inflate asset prices
For the US, that's not true. The US Dollar is the world's reserve currency, and the Fed isn't worried about inflation, but a lack of money supply. The pandemic has led to a huge demand for safe assets, including Treasury bonds, which has led to incredibly low interest rates on Treasury bonds, and a stronger dollar. See, for example, this article: https://www.washingtonpost.com/business/2020/04/05/what-2-tr....
In short, Covid-19 triggered an economic tsunami, but so far the US federal government has held it at bay:
* Since March, the Federal Reserve has created "out of thin air" approximately $3 trillion dollars in new monetary assets, to support asset prices and prevent another financial crisis. This figure is about 3x greater than the $1 trillion of monetary assets created in all of 2008 and 2009, during the worst of the financial crisis. Source: https://fred.stlouisfed.org/series/WALCL
* In addition to the above monetary intervention, the federal government launched a ~$3 trillion rescue package at the beginning of the pandemic (including all those PPP loans that won't be repaid, all that spending on special unemployment benefits, all sorts of support for states, businesses, etc.), and now the debate is whether to spend an additional ~$1+ trillion (the last figure floated by the US treasury) or an additional ~$3.4 trillion (as proposed by congress). Source: https://www.reuters.com/article/health-coronavirus-usa-congr...
The federal government is supporting the economy in an unprecedented manner to an unprecedented degree, to prevent it from collapsing until the virus is fully under control. All economic statistics reflect this unprecedented massive economic support. They do not reflect the "true underlying state" of the economy. There's nothing counterintuitive about that.
Right but that is a result of stimulus, and an increasing deficit, giving people (international economic agents) less faith in the value of the dollar. Sure, these things are related to the economic effects of the pandemic, but I was trying to focus on the longer term effects of the economic relief that's being done and less about the semantics of whether we should have done stimulus to deal with the pandemic (which seems like a reasonable thing to have done).
The pandemic will deflate most economies. So much so that that attempts to correct for this by injecting cash, controlled intentional inflation, only lightly softens the blow. The US economy is expected to see a contraction of 35% to the GDP this year, which is huge. I believe the great depression only contracted the US economy by around 22%. This great deflation is even after several rounds of economic stimulus, which are largely comprised of giving people money from the government in similar spirit to a UBI.
In this case the goal of stimulus is inflation and it isn't enough to repair the economic disruption.
Despite the sharp and historic deflation this is not unusual though. Pandemics are historically known for economic deflation. Europe experienced a devastating pandemic about once a century for more than 10 centuries in a row yielding plenty of economic evidence to this.
The most important thing to learn from this is that a sudden economic deflation hurts poor people and corrections insufficiently help poor people. Wealthy people are not directly impacted, at all. Attempting to correct for that difference with an economic stimulus, such as giving poor people cash, does not at all balance that disparity.
If anything this current pandemic illustrates that a UBI is an insufficient control for balance. Instead of focusing on what to do about poor people if the goal is to balance the disparities of wealthy people against poor people then wonder what to do about wealthy people. Tax the shit out of wealthy people and use that increased government revenue to grow the economy directly in ways only business can: increased infrastructure (there is more to that than just roads and telephone poles).
As for taxing wealth I am a huge fan of a complete estate tax and not a huge fan of income taxes. Take everything greater than $10 million of estate value when a wealthy patron dies.
Especially when coupled with the excessive fiscal stimulus.
We should absolutely help those most impacted by the pandemic, but the amount of money being injected amounts to gross negligence.
Why were people who made 6 figures and still employed being given checks, for example? The stock market is on fire, and many businesses are smashing earnings expectations, yet we inject another $2 trillion?
I've got a sizable portfolio, but the government response frankly saddens me. The green we see every day just represents inflation (of assets). Big gains in stonks, but now we have to pay 2 million dollars for a house in a nice part of town.
Really unfortunate for those without significant assets that ever hoped to own a home.
Well Congress needs to get reasonable with the boost per week for unemployment rather than the $600 a week boost; a number likely chosen for that 600/40 magic number. The $600 isn't sustainable let alone on top of the $1200 per house hold plus $500 per dependent.
Worse is the stuffing of the bills with defense appropriations and more items not related to COVID19. Worse is the attempt to feed the state governments between five hundred to a trillion dollars to shore up budgets of states that are not even trying to clip their expenditures, most of this is routed towards shoring up their pension systems and again, not COVID19 related.
The real pandemic is the debt bomb that Congress is foisting on the American public, remember, no serious crisis can be allowed to go to waste. It is time for the money to flow to friends and family.
It's standard Keynesian monetary policy. There's bound to be some impact on the economy from the coronavirus, but sudden shocks to the system cause the economy to overreact, and far more people get thrown out of work. If the government overstimulates, then you get inflation, but in a crisis unemployment is a bigger problem.
QE and monetary stimulus is primarily effective at counteracting demand shocks. For example productive capacity, like empty storefront or unemployed workers, sits unused because liquidity has dried up.
A worldwide pandemic would primarily exert its economic effect through supply shocks. The productive capacity of the economy genuinely shrinks. Stores can't open during a quarantine. Sick workers can't show up at the office.
A pandemic might have second-order demand shocks, particularly if panicking investors flee to quality. But there'd still be a genuine contraction in real and potential GDP, most of which would get absorbed by contracting corporate profits. Monetary stimulus can't route around those constraints.
It is the answer when the shortage is an abrupt, acute disruption in the money supply. A massive number of people were made unemployed by the pandemic. We had lines at food pantries stretching miles long.
If you recall, at the beginning of the pandemic we we had farms ploughing under crops for lack of demand. Potatoes stacking up to high heavens, farmers offering them free to anyone who'd arrive with a bag to transport them.
The author actually mentions the traditional knobs of monetary policy don't impact the distribution of money at the bottom of the economy where it is needed. That's why the direct stimulus and now family UBI is so different, and should be looked at as imperfect but necessary for addressing the need at hand.
It probably did prick a bubble. But all the economic recovery measures for the pandemic may, ironically, push further out the point at which the systemic issues break the market and force resolution. Especially in the U.S., economic aid invariably ends up contributing far more to corporate balance sheets than it does citizens' wallets. I mean, what was the first response of the GOP to prospective economic issues? Cut taxes, including payroll taxes, which could have dealt a death blow to Social Security and Medicare considering how many Republicans are itching to get rid of those programs entirely.
Once COVID-19 passes I would expect more of the same. For reasons that aren't entirely understood, inflationary effects of monetary stimulus are highly attenuated, at least for the average consumer, although they clearly contribute to the ever increasing wealth of top earners, not to mention financial assets. Who knows how long we can keep going down this road.
"The obvious one is fiscal policy, with governments everywhere using budgetary stimulus more actively since the pandemic. The impact of higher interest rates has been dampened in two ways. First, consumers had high levels of liquid assets (sometimes called “excess savings”) left over from the pandemic, which provided a financial cushion that protected their spending power. Second, governments have been deploying additional funds since COVID-19, such as the large energy support programmes in Europe and Bidenomics in the US (big tax subsidies that encouraged US companies to invest heavily in green energies). These funds have supported incomes and employment, even as monetary policy engineered a squeeze"
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People on here are overstating the impact of a handful of software companies and buzzwords on the larger economy.
what the pandemic is making more obvious is that money is getting stuck in idle and infirm hands. further, money is being injected into the wrong hands in the economy. we need money being injected closer to productive hands (like essential workers) rather than the current centralized system giving it to far-removed capital holders, those who prefer rent-seeking and other non-productive ways of stalling the velocity of the economy for their own benefit.
We are experiencing both. During the pandemic governments inflated the money supply to fund vaccines, cash payouts to citizens, and huge programs to keep payrolls flowing. The pandemic also increased demand on consumer goods because people were spending their stimulus checks on goods since you couldn't go out or travel. Add on the fact that there are shortages of goods because many producers were slowed down significantly by lockdowns and staff shortages.
So we have both fewer goods available for purchase and less valuable money to buy them with.
maybe stimulus funds could be complicit, but i have a gut feeling that a lot of people have learned to live without steady employment, or even lost possesion of assets requireing regular infusions of cash in order to be possesed
no citations, just a gut feeling. i know anecdotaly there is more self sufficiency in my area than previous to covid times
People across the globe are watching how the distribution of wealth in each country relates to the economic effects of this.
There are a lot of confounding variables, some more related to wealth distribution (i.e. universal healthcare vs not), and some less related (timeliness of local authorities and government reaction).
At the individual household level in the US at least, household savings are very low among large segments of the population (because of high wealth disparity), so there is very little to fall back on for most people. Depending on the length and severity of the pandemic, the 2T relief/stimulus bill may not be enough.
Overall, this is a huge test for how whether the amount (or lack) of slack in important areas of the system - primarily income and health care, but others too - can cope with this shock.
You're conflating the pandemic with the pandemic stimulus. The savings rate shot up among the classes that remained employed but whose expenses fell through the floor. These people got little of the unemployment benefits, and many were also above the threshold for the stimulus checks.
Let me explain. The PUBLIC SECTOR is in debt. It won’t be able to continue borrowing on the same terms unless it prints more money (leading to inflation unless done during a crunch of the money supply due to defaulting private sector loans etc).
Even before this pandemic, by cutting taxes the US Government got larger deficits under Trump (after Bush’s $1.5T a year deficit, Obama era got it down to $500B only, and then Trump’s and Republican budgets ran it up again.) The public sector deficits add up to the debts.
The northern cities - forget about it, they can’t even print their own money, and they shus down their businesses - they are screwed.
Now, everything is relative, so US sovereign debt instruments compete against, say, China’s in the open marketplace. But, there are alternatives to US treasuries - like Bitcoin and cryptos and gold etc.
If banks start to keep those as reserves, then the public sector and central banks will have decreasing power unless they FORCE the banks to have higher reserve requirements of base money that they print.
Btw in the USA, the vast majority of dollars is issued by banks (to businesses whose cashflows back this money supply, so bailing out businesses is a priority for the economy).
People are taking all that fiat money being sent by the government created by banks and plowing it into assets, which the government doesn’t have laws to seize, dilute the value of, etc.
This is a big mistake. There is nothing the Fed can do revive the economy from the Corona virus, because this is not a demand problem, it is a supply problem. The economy WILL slow down because the major parts of the economic chain have been considerably affected by this virus. You cannot use more money when there is less to buy and sell. This will happen simply because whatever solution to the virus disruption will take time to be implemented.
And I think you're confusing monetary stimulus with fiscal stimulus.
> It doesn't matter how the money is distributed, it tends to inflate asset prices
For the US, that's not true. The US Dollar is the world's reserve currency, and the Fed isn't worried about inflation, but a lack of money supply. The pandemic has led to a huge demand for safe assets, including Treasury bonds, which has led to incredibly low interest rates on Treasury bonds, and a stronger dollar. See, for example, this article: https://www.washingtonpost.com/business/2020/04/05/what-2-tr....
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