The Debate About Stimulus Is Missing the Point

Mervyn King
By Mervyn King
Stimulus is today’s economics buzzword. With a new administration in Washington, amid an accelerating rollout of mass vaccinations, policy discussion in the U.S. revolves around the size of the next fiscal package. Similar debates are taking place across the world. But the word “stimulus” is causing a lot of confusion. The focus on the mere size of the next plan draws attention away from what is actually going on in our economies.

In many ways, stimulus is beside the point. The key words ought to be support and shift — support in the short run for those worst affected, and the shift of resources that will be needed later, once a successful vaccination program (not to be taken for granted) has been largely completed.

The reason for this is straightforward: None of the major economies have experienced a normal business-cycle downturn nor can expect a normal bounce-back. Output has fallen because of government-mandated shutdowns and decisions by households to protect themselves by not going out to work and spending as usual. It would be odd for a government to curtail economic activity for reasons of public health while at the same time trying to boost activity with monetary and fiscal stimulus. Central banks and governments have got themselves into a tangle because of a failure to be clear about the nature of the problem.

Read the full Bloomberg article.

Lord Mervyn King is the Alan Greenspan Professor of Economics and a professor of Economics and Law, a joint appointment with New York University School of Law.