LPE and COVID-19: Monetary and Fiscal Policy

Welcome back to the Harvard LPE blog for day two of our COVID-19 series! Today's theme: Monetary and Fiscal policy in the time of Corona.

Here's what we've been reading:

• Prof. Antonella Stirati explains why we should reject austerity politics and embrace expansionary public spending as the key to recovery from COVID-19.

• Prof. Bob Hockett offers a comprehensive proposal for immediate coronavirus-related economic mitigation measures, including an immediate debt holiday, biweekly universal income support, and non-debt monetary expansion.

• As productive capacity grinds to a halt, and government spending surges, many are asking: how is the government paying for all this? Adair Turner, Senior Fellow at the Institute for New Economic Thinking, explains that central banks will provide monetary finance to fund fiscal deficits. Prof. Pavlina Tcherneva offers a related explanation in the interview: Will Covid-19 Make Modern Monetary Theory Mainstream? And The Alliance for Just Money provides a breakdown of the stimulus plan and its funding mechanisms.

• In late March, Congress discussed creating a digital dollar regulated by the Federal Reserve in order to increase the speed of stimulus payments to US households. While Congress did not end up doing this, the growing discussion around it is a noteworthy development for the future of digital currencies and inclusive banking. Over at JustMoney, Prof. Katharina Pistor discusses central bank digital currencies and makes “The Case for Free Money (a real Libra).”

• Currently, the US lacks a permanent federal agency in charge of coordinating economic mobilization in times of crisis. Prof. Saule Omarova makes the case for a National Investment Authority, which would oversee the implementation of relief packages and ensure that emergency measures are executed in an efficient, transparent, democratically accountable, and socially just manner.