Central banks must address pandemic challenges

‘Hopes for an inclusive global economic recovery are fast fading. As rich countries have done little to ensure poor countries’ access to vaccines and fiscal resources, North-South “fault lines” will certainly widen.’

This story is well argued and contains several relevant and informative links under the following subheadings:

• Enhancing relief, recovery, transformation
• Macroeconomic policy coordination
• Central banks’ developmental role
• Supporting transformation
• Bolder actions needed

Read here (IPS News, Aug 3, 2021)

A much-needed RM52 bil Covid-19 relief plan for Parliament to pass – P Gunasegaram

‘A RM50 billion injection of aid by giving cash to the most needy sections of society and an RM2 billion immediate injection to help hospitals in the Klang Valley cope with large numbers of Covid-19 cases are probably the most urgent things to do now.

‘This will alleviate the needless suffering of large numbers of people in the current environment who have to literally beg for food by flying white flags and rely on volunteers and non-governmental organisation to help them while the government should be at the forefront of such efforts.

‘But how would the government raise that RM52 billion, you ask. It can be done through multipartisan efforts by political units to raise the debt ceiling. And this can be done by calling for an urgent meeting of Parliament. But first, let’s lay out the problems and solutions.’

Read here (The Vibes, July 13, 2021)

Coronavirus economic relief: Are we getting value for the money thrown at the pandemic? - Andrew Sheng

‘The US fiscal deficit rose from 6.4 per cent of GDP in 2019 to 17.5 per cent in 2020. This is an increase of 11.1 percentage points in GDP fiscal support to defend a decline of 5.8 percentage points in GDP growth...

‘The Biden administration is betting that the largest US stimulus package since World War II will restore American competitiveness and heal the nation. But much of this is not funded by domestic savings, such as taxing the rich, but by borrowing on the US dollar. 

‘The rest of the world will not fund the dollar forever, certainly not at near-zero interest rates. And if interest rates rise, the fiscal costs would be substantially higher. So bet on the Fed doing more to keep rates low. The truth of US debt is that it is not debt, but the rest of the world’s equity. America is the world’s too-big-to-fail borrower. If Biden fails, we will lose.’

Read here (South China Morning Post, Mar 13, 2021)

Prioritise pandemic relief, recovery: No time for debt buybacks

‘Developing country governments are being wrongly advised to use their modest fiscal resources to pay down accumulated debt instead of strengthening pandemic relief and recovery. Thus, debt phobia risks deepening and extending COVID-19 recessions by prioritising buybacks...

‘With ‘collective action’ complications affecting negotiations, and the greater number and variety of heavily indebted countries and creditors, equitable debt buybacks are impossible to negotiate. Worse, prioritising buybacks means rejecting former debt hawk Reinhart’s current pragmatic advice to “First fight the war, then figure out how to pay for it”.

‘The urgent priority is for fiscal resources to strengthen relief, recovery and reform measures. Prioritising debt buybacks, instead of urgently augmenting fiscal resources, may thus contribute to another “lost decade” or worse.’

Read here (IPS News, March 9, 2021)

Developing countries struggling to cope with Covid-19

‘The ongoing COVID-19 pandemic is adversely impacting most developing countries disproportionately, especially the United Nations’ least developed countries (LDCs) and the World Bank’s low-income countries (LICs).

‘Years of implementing neoliberal policy conditionalities and advice have made most developing countries much more vulnerable to the COVID-19 pandemic by undermining their health systems and fiscal capacities to respond adequately.’

Read here (IPS News, Feb 23, 2021)

Nonstimulus arithmetic: Why the American Rescue Plan has to be big -- Krugman

‘We are not in a conventional recession — a decline in output due to insufficient aggregate demand. What we’re suffering from, instead, is a partial lockdown, the result of both public policy and private choices, that has sharply curtailed high-infection-risk activities, like indoor dining.

‘Pumping up overall spending with fiscal and monetary policy wouldn’t send diners back into restaurants, nor should it. So we aren’t experiencing a normal output gap, something that should be closed by stimulus. It’s actually not clear whether we even want employment and GDP to be higher before vaccination gives us herd immunity.

‘What, then, is the role of policy? As some of us have been arguing all along, it’s not stimulus, it’s disaster relief: an attempt to shore up the living standards of those hurt by the temporary lockdown, as well as providing resources to deal with the pandemic itself. Or as I recently argued, you can think of what we’re doing as being something like fighting a war — special expenditure in the face of an emergency.’

Read here (paulkrugman.substack, Feb 10, 2021)

The billionaires who profited from the pandemic should help pay for our recovery

‘The collective wealth gain of roughly a trillion dollars that the billionaires have enjoyed is more “than it would cost to send a stimulus check of $3,000 to every one of the roughly 330 million people in America,” the report states. “A family of four would receive over $12,000.” The report points out that a trillion dollars is also “double the two-year estimated budget gap of all state and local governments”—the deficit facing states that will certainly prompt them to make more cuts in public jobs and services if it isn’t addressed. The authors of the report don’t argue that taxing the recent gains of the mega-rich would cover the entire fiscal cost of the pandemic. They stress, instead, the undoubted fact that, at the very apex of U.S. society, there is now a staggering—and historic—amount of wealth that could be taxed.’

Read here (The New Yorker, Dec 10, 2020)

Tucked into the Covid-19 stimulus package? Protection for corporations

‘US Representative Alexandria Ocasio-Cortez has been one of the few Democratic lawmakers to spotlight what’s really going on. Last week, she tweeted: “If you want to know why Covid-19 relief is tied up in Congress, one key reason is that Republicans are demanding legal immunity for corporations so they can expose their workers to Covid without repercussions.”

‘The bipartisan initiative aims to obscure its Dr Evil level of depravity by superficially depicting the liability shield as merely temporary. But that seems like a ruse, as indicated by private equity mogul and senator Mitt Romney of Utah, who said the federal Covid-19 liability shield provision “provides a temporary suspension of any liability-related lawsuits, state or federal level associated with Covid-19, giving states enough time to put in place their own protections”.’

Read here (The Guardian, Dec 5, 2020)

Unconventional measures for extraordinary times no excuse for more abuse

‘...There are widespread concerns that bolder expansionary fiscal policies are likely to be abused by typically short-termist governments of the day, tempted by macroeconomic (ethno-)populism, and unconcerned about the medium- and long-term consequences of increased spending, borrowing and debt. 

‘Only much better governance, transparency and accountability can minimise harm due to likely ‘leakages’ and abuses associated with increased government borrowing and spending. Such fiscal policies typically involve governments borrowing, especially by selling bonds and other securities, including to central banks. 

‘Publics often presume that governments tax first in order to spend. In fact, they usually spend first, and then tax. Poorly accountable governments often take advantage of real, exaggerated or imagined crises to pursue more populist macroeconomic policies to secure regime survival and benefit the politically well-connected.’

Read here (ksjomo.org, Dec 3, 2020)

United States: Beyond the wasteland -- New strategies for pivoting from the pandemic crisis to a recovery built on economic justice

‘Decades of falling wage shares mean that millions of households are ready to spend more if only they could earn more income. A well-calibrated recovery strategy that combines public spending on goods and services with regulation of predatory corporate behavior and effective redistribution can unleash a virtuous growth circle that improves living standards for the vast majority and strengthens government finances even as it generates resources to boost public services and tackle the environmental catastrophe.

‘Such a strategy would consist of the following elements:

• A prolonged fiscal expansion with immediate support to employment creation and social services, including a strong component in the care economy;
• Public-infrastructure investment to accelerate the energy transition by combining policies to encourage investments in renewables and discourage fossil fuel extraction;
• Policies to improve industrial capacity based on raising productivity and greater energy efficiency;
• Progressive tax reforms shifting the burden from indirect taxes such as sales and value-added taxes (which are regressive and discourage spending) to direct taxation, especially on high-income earners (whose consumption is relatively unaffected by taxation) and on corporate earnings and rents (with exemptions depending on employment creation).

Read here (The American Prospect, Nov 27, 2020)

Only governments can prevent Covid-19 recessions becoming depressions

‘In March, French economists Emmanuel Saez and Gabriel Zucman, both at Berkeley, proposed that governments help ease pain and disruption with payer-of-last-resort programmes, with adversely affected businesses reporting unavoidable monthly overhead and maintenance costs to qualify for government aid.

‘Such a payer-of-last-resort programme would reduce hardship for workers and businesses. It could enable businesses to temporarily suspend or scale down operations, to limit haemorrhage and avoid insolvency, and to pick up quickly as conditions improve. It would maintain ‘cash flow’ for families and businesses, minimising Covid-19 shocks’ adverse secondary impacts on demand (e.g., due to fired workers spending less on consumption), while enabling more rapid recovery as demand resumes.’

Read here (ksjomo.org, July 30, 2020)

The Covid-19 pandemic is forcing a rethink in macroeconomics: It is not yet clear where it will lead

 ‘In the form it is known today, macroeconomics began in 1936 with the publication of John Maynard Keynes’s “The General Theory of Employment, Interest and Money”. Its subsequent history can be divided into three eras. The era of policy which was guided by Keynes’s ideas began in the 1940s. By the 1970s it had encountered problems that it could not solve and so, in the 1980s, the monetarist era, most commonly associated with the work of Milton Friedman, began. In the 1990s and 2000s economists combined insights from both approaches. But now, in the wreckage left behind by the coronavirus pandemic, a new era is beginning. What does it hold?...

‘The rethink of economics is an opportunity. There now exists a growing consensus that tight labour markets could give workers more bargaining power without the need for a big expansion of redistribution. A level-headed reassessment of public debt could lead to the green public investment necessary to fight climate change. And governments could unleash a new era of finance, involving more innovation, cheaper financial intermediation and, perhaps, a monetary policy that is not constrained by the presence of physical cash. What is clear is that the old economic paradigm is looking tired. One way or another, change is coming.’

Read here (The Economist, July 25, 2020)

How the coronavirus may deliver a shock to the US dollar: Stephen Roach

‘America is leading the charge into protectionism, deglobalisation and decoupling. Its share of world foreign-exchange reserves has fallen from a little over 70 per cent in 2000 to a little less than 60 per cent today. Its Covid-19 containment has been an abysmal failure. And its history of systemic racism and police violence has sparked a transformative wave of civil unrest.

‘Against this background, especially when compared with other major economies, it seems reasonable to conclude that hyperextended saving and current-account imbalances will finally have actionable consequences for the dollar and/or US interest rates.

‘To the extent that the inflation response lags, and the Federal Reserve maintains its extraordinarily accommodative monetary-policy stance, the bulk of the concession should occur through the currency rather than interest rates. Hence, I foresee a 35 per cent drop in the broad dollar index over the next two to three years.’

Read here (South China Morning Post, June 25, 2020)

‘Dignity not destitution: An ‘economic rescue plan for all’ to tackle the Coronavirus crisis and rebuild a more equal world’. A paper by Oxfam

Oxfam calls for US$2.5 trillion plan to tackle the pandemic and prevent global economic collapse in a paper:

‘New analysis shows the economic crisis caused by coronavirus could push over half a billion people into poverty unless urgent and dramatic action is taken... We can only beat this virus through coming together as one. Developing countries must act to protect their people, and demand action from rich nations to support them. Rich country governments must massively upscale their help – led by the G20. This paper lays out an Economic Rescue Plan For All that meets the scale of the crisis, mobilising at least $2.5 trillion dollars to tackle the pandemic and prevent global economic collapse. It prioritises helping people directly: giving cash grants to all who need them. An immediate suspension of the debt payments of poor countries, combined with a one-off economic stimulus by the IMF and an increase in aid and taxes, can pay for this.’

Download here (Oxfam, April 9, 2020)

Paul Krugman: ‘We really are talking about a depression level event’

‘Nobel Prize-winning economist Paul Krugman tells Lawrence O’Donnell that Trump and his allies in Congress are “balking” at the things that need to be done to support parts of the economy that need the most help, like small businesses, hospitals and local governments: “We are at risk of turning this into even worse than it has to be… the administration is refusing to acknowledge the depth of the problem and is trying to pursue an ideological agenda that is getting in the way of dealing with this”.’

View here (MSNBC, Youtube, April 15, 2020)