John Robson: You can't 'stimulate' your way out of a pandemic-driven recession

Macroeconomics is the study of a mysterious purple dragon called GDP that hovers in the sky somewhere, writes John Robson.

With the COVID-19 pandemic, everyone tells governments to “stimulate” something called “the economy” through deficits and cuts in interest rates so that we do not have less wealth just because people cannot go to work and create it.

Concerning this, it has been suggested that economic theory may not be the most important thing. But how many solitaire games can you play? So the economy is broken down into “micro,” the study of what real people really do, and “macro,” the study of a mysterious purple dragon called GDP floating somewhere in the sky.

If there is any doubt, unless the government multiplies loaves and fish or cures the sick, it cannot “stimulate” the “economy” in a pandemic.

Alarming situation

Given all this situation, clearly, questions and concerns arise in the world. But if people are not working due to illness, how does the government help accumulate debt? Or lower interest rates so we can accumulate debt?

If you want subsidies to help people make ends meet until quarantines are over, be very clear: do you suggest that governments take money from some people with enough money and give it to others without money or believe it from nothing?

There are no micro arguments for deficits. Of course, if the government borrows a dollar and gives it to someone who spends it, a warehouseman and a factory worker are “encouraged” to sell and manufacture. But the person from whom the government borrows does not necessarily spend the same dollar, so they pay immediately. 

Monetary strangulation became orthodoxy, except that instead of taking out money backed by silver, taking it out backed by nothing would make us all wealthy.

The real value of many suspended activities may be less than macroeconomists think, especially government activities. And telecommuting can lessen the impact. But if we are not making coffee and hammering nails, we are worse.

Source: John Robson | National Post