Starting over again: The COVID-19 pandemic is forcing a rethink in macroeconomics

(The Economist)

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?

Talking Points:

The economic crisis wrought by the COVID-19 pandemic is leading to a reassessment of both the objectives of macroeconomic policy and the tools at policymakers’ disposal. Coming, as it has, after a decade of near-zero interest rates and quantitative easing, it is testing the limits of monetary policy. While the current level of inflation suggests that there is room for further monetary easing, fiscal policy represents a better opportunity for targeted stimulus. At a time when secular stagnation, income inequality, and climate change are very much part of the political zeitgeist, this crisis presents a vital opportunity to enact policies for resilient, inclusive, and environmentally sustainable growth.

ICTC’s latest white paper with proposals for Canada’s post-COVID economic future is available here. - Akshay Kotak | email


Want to receive more content like this in your inbox?