Jan Kriegel suggests alternative policies to deal with the pandemic

From a New Keynesian point of view, Jan Craigil, research director at the Levy Institute of Economics at Bard College, discusses mistakes in dealing with the repercussions of “Covid 19” on the US economy. Craigil believes that dealing with the “Covid 19” crisis through traditional monetary policies to inject new money into the arteries of supply and demand was based on a misdiagnosis. At first, Craigil believes that it is imperative to admit that the crisis is rare and that dealing with it should be his priority by providing people with food and drink directly from the government, and suspending financial and banking transactions during the closing and recovery period to that default rates do not increase and then distribute the losses to everyone. Economic units of institutions and workers.

Kriegel’s working paper entitled “Alternative Macroeconomic Policies for the Epidemic Economic Recession” is based on the emergence of additional waves of the epidemic. There are several countries that are experiencing a second or third wave, as well as an increase in infection rates, so countries may re-impose restrictions on commercial activities, in addition to different grades of stone. In the United States in particular, the political situation makes a coordinated federal response unlikely. ” Therefore, it is important to study the best approach of economic policies to face the crisis of “Covid 19”, if we return to the need for a complete shutdown. To do this, “there is an alternative approach that differs from the prevailing one, as well as other responses inspired by Keynesian politics. Since the outbreak of the disease in China was first declared and treated through strict quarantine, the initial focus has been to reduce production due to disrupted global supply chains, putting pressure on supplies and prices. . When the pandemic began to appear in Europe and the United States, and non-essential productive activities were suspended, the debate quickly turned to a collapse in demand, as well as the layoff or forced layoff of workers. In this context, the focus has shifted from an inflationary spiral to a recession or a recession, or both. “
Craigil notes that the prevailing political debate revolves around “addressing supply bottlenecks and demand failures.” But the problem is that in the background of these discussions the global financial crisis was also present, and this is what generated measures, most of which were financial supports similar to the support used after 2008, leading to an increase in the spending on the public deficit, and a decrease or absence of interest rates to compensate for the drop in production and sustain demand. In this regard, the Federal Reserve moved quickly on interest rates and expanded its public budget, while Congress issued multiple “stimulus” packages to compensate for the loss of income and employment. Keynesian Democrats have joined Republicans in saying there is no reason to fear spending through deficits and (US) public debt expansion. The mistake was initially, as it resulted in an incorrect political response. There was a wrong description of the problem facing the economy. Craigil concludes this from the events related to the epidemic and the diagnosis of the crisis. Events in China revealed early that the virus represents a state of absolute, comprehensive and complete uncertainty regarding its nature and impact. Keynes did speak of the natural response in situations like this, starting from the assumption that tomorrow will be like today, that is, return to something you know. This is what happened. The official response was “Don’t panic, we know that SARS and MERS have eventually been brought under control so you don’t have to worry too much.” In short, my first business was avoiding panic. And this was, outside of China, very easy in the absence of real evidence of the presence of the virus before February.
Since then, the crisis has been tackled through traditional supply-and-demand policies. Central banks quickly lowered interest rates to zero and sometimes negative, and pumped in money by buying back Treasuries. The government has issued support packages targeting demand, on the one hand, by giving money to citizens, and supply, on the other, supporting companies through tax exemptions and direct support so that they do not have to lay off workers or close for full.
At Craigil, these policies have turned out to be a failure. “The partial recovery that the economies of these countries witnessed was the result of the reopening that took place gradually with the beginning of the summer season, and this issue came at the expense of the health sectors of these countries, which once again witnessed , new waves of virus spread, more ferocious than the previous one. Here we are witnessing a return to the blockade measures in most of these countries, especially in Europe, which will again affect the economy.
So what had to be done is something different, according to Craigil. It was necessary to ensure that everyone had the ability to manage the survival of the virus through home quarantine. It was necessary to implement stimulus packages from the government in a fair way so as not to worsen the income and wealth inequality gap ”. This requires response mechanisms different from those adopted during the Great Depression of the 1930s: “increasing confidence that the epidemic can be defeated.” In other words, a sense of safety and security and a clear path out of the risk of illness and unemployment must be created to combat the fear and uncertainty of losing one’s job. How can this be done? It is clear that closing means not working, not working means not having a job demand and staying home means that you do not have the means to spend a lot. What was needed was a guarantee of survival, not a guarantee of income. If everyone stays at home, even if they lose their job, they will have enough to eat and survive without fear of the restrictions that follow the loss of income. The United States has a system of minimum unemployment benefits and state food support to provide food security for low-income families. “One possibility was to supplement everyone’s income by expanding these programs to include everyone classified as subject to closure. The essence of the closure means the suspension of the market mechanism, the labor market, the consumer market and activity in general. Providing cash transfers requires market participation; If the market didn’t exist, it wouldn’t work. Support must be provided by a central organization, by the government. “

Everyone must admit that this crisis is exceptional and that the prevailing “logic” no longer works, but that the distribution of the inevitable losses is a duty, otherwise the results will be disastrous.

So Craigil proposes a set of alternative measures. Some of them were previously tried, but they all mean that there is an exceptional crisis and must be treated exceptionally on the basis of “survival”:
An institution must be created to distribute food to all people and ensure that everyone receives enough food, and to reform the food service sector into a distribution sector. There is a previous successful experience in this field: the experience of Herbert Hoover, who went to Belgium in WWI and created an association dedicated to distributing food to the Belgian people after the economy had come to a complete stop in that occupied country since Germany at that time, and could no longer import food (and it was imported food. Three-quarters of the food intake). His operation was successful, which means that the idea is viable and is better than sending $ 1,200 per person in the country to consume goods that do not exist.
– All income is spent in turn. Production generates income and increases consumer spending. In this equation, there is no benefit to targeting one item without the rest. If one of these elements is disabled, pointing to any other element will not change anything. The faulty component in this case is production due to a blockage. If companies do not produce, it is useless to send support packages, since they have no production cost and they do not need to pay wages to workers because the government is in charge of ensuring everyone’s basic needs.
– The fixed costs of individuals remain on the shoulders of the citizen even in the event of closure, such as rents and installments on housing debt. These costs do not need financial support from the government, but can be suspended because the owners have to bear the closing costs as well as the individual. A successful closing requires that each economic unit receive a minimum of revenue and costs. This means that everyone must share in the loss.
– All financial transactions should be suspended during closing, especially banking transactions, including payment and debt service, to avoid high rates of debts that will naturally not be repaid in this period, and this includes the recovery period after the closing to avoid creating significant financial problems such as inability to pay. .
– Everyone must admit that this crisis is exceptional, and must understand that the “logic” that prevailed before it no longer works, and that the distribution of unavoidable losses is a duty, otherwise the consequences will be dire. Returning to normal life will take a long time, while governments must be responsible for the resilience of their entire population, especially the poorest groups.

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