Fiscal Policy During and Beyond the Covid Crisis
— December 4, 2020
By Mervyn King
In effect, the market economy was suspended. Using conventional economic language to describe such a downturn has bred confusion about how policy should respond.
If, for reasons of public health, the government is deliberately shutting down parts of the economy, it doesn’t make sense to simply stimulate spending to fill the gap. Households would like to spend more on entertainment, hospitality and travel but they can’t. Pent-up demand will emerge when Covid-19 subsides — so long as incomes are supported during the current restrictions.
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.