Bill Mitchell — The coronavirus will redefine what currency-issuing governments can do – finally

Life as we knew it is changing fast, almost by the hour. Most of my speaking engagements, which were heavily booked for the foreseeable future, have been cancelled or deferred. All the gigs that my band was booked for have been cancelled until people start returning to the now, empty venues. And, more significantly, the ideologues are giving way to the pragmatists in the policy space. Almost (see below). The sudden realisation that even Germany will now spend large amounts to protect their economy exposes all the lies that have been used in the past (up until about yesterday) to stop governments doing what they should always do – maintain spending levels in the economy to sustain full employment and ensure no-one falls through the cracks and misses out on the material benefits of growth. In the early days of the GFC, I thought that the neoliberal era, supported by the mainstream macroeconomists, might be coming to an end. Maybe I was a decade out in my prediction. Perhaps this crisis, induced by a human sickness, will end the madness that has redistributed massive volumes of income to the top-end-of-town, sustained elevated levels of labour underutilisation and seen the traditional progressive political voices become mouthpieces and even agents for the neoliberal economic lies. I was wrong in 2008 on this score. I hope something good like this comes out of the current disaster. The coronavirus comes on top of already growing dissent over the failure of mainstream economic policy. It will redefine what governments can do with their obvious fiscal capacity and will demonstrate once-and-for-all the lies that the mainstream economists tell about deficits, inflation, interest rates, etc. It will categorically demonstrate the capacity of the currency-issuer. All that will lay the foundation for a better future, if we get beyond this current malaise.

Unfortunately, this crisis involves not only aggregate demand issue, which fiscal policy can address, but also an aggregate supply one as production is disrupted and global supply chains break down. It will be difficult to address this while production is curtailed, creating bottleneck and shortages. Then, there is also hoarding that disrupts normal distribution channels.

There needs to be a coordinated response that addresses both.

What I am seeing a lot of discussion of national and local self-sufficiency instead of comparative advantage in trade. Supply chains have been extended too far and concentrated too much, and efficiency has overshadowed redundancy and resilience. Business leaders are talking about this now, whereas it had been largely ignored previously in favor of maximizing profits, creating imprudent exposure.

Bill Mitchell – billy blog
The coronavirus will redefine what currency-issuing governments can do – finally
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia