July Stimulus

Information on the budgetary package is available from this webpage. Some costings and other details are provided in this short document.

One reply on “July Stimulus”

This stimulus packaged has to be welcomed. My only questions are: will the multitude of gravy trains be able to cope with the huge volume of public largesse being dumped on them? and will enough be slopped off to those who lack economic and organisational power, but who really need it?

This stimulus, which is similar in intent, if not in content, to those in many other economies, suggests that, under cover of the response to Covid-19, macroeconomic policies are being completely recast in almost all of the advanced economies. This week, The Economist surveys the landscape and the dramatic shifts that are taking place:

This shift is long overdue – though the jury is still out on where we will end up. While reading this piece I really struggled to suppress the gallows humour. Millions of people have suffered serious economic and social hardship – and many have died long, long before their time – because of the failure to initiate this shift after the GFC.

Capitalism constantly mutates. It never settles at an equilibrium; the notion makes no sense or has any relevance in the context of its ceaseless mutation. But macroeconomists are obsessed about identifying equilibria, even if they are sub-optimal. And it gets worse. Most macroeconomists focus only on the workings-out of the most recent mutation of capitalism that presents the potential to identify some sort of equilibrium. And often this is not even the most recent mutation. It’s just the one where they can apply their current set of tools most easily. While they are playing with their tools, capitalism continues to mutate.

And to cap it all, many macroeconomists, and particularly those who are most influential or have senior policy-making roles (or both), have ideological biases or are exposed to incentives (or both) that encourage them to facilitate whatever is presenting as the current mutation of capitalism even if the existing theory and practice of macroeconomics (flawed as they might be) are indicating very different policy prescriptions and the use of very different instruments.

Capitalism and democracy are uneasy bed-fellows, but functioning mixed economies require them to work in tandem. Democratic governance has to shackle, but not to suppress, capitalism to ensure that it generates economically and socially useful outcomes. The shackles have been off for far too long. The results in terms of obscene inequality, the pauperisation of the public realm, excessive concentrations of economic power and wealth and the sustained capture of economic rents should be obvious to all. Let’s hope we can re-apply the shackles sensibly. If not, the alternative forces purporting to offer remedies – populist, xenophobic, right-wing nationalists and anti-capitalist, anti-western left-wingers – will secure much more political traction.

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