Asj wej learnedj thisj week,j therej arej ‘automaticj stabilizers’j putj inj placej whichj helpj anj economyj
sufferingj fromj aj recessionj attemptj toj recoverj quickerj byj dampeningj thej effectsj feltj duringj aj
recession.j Twoj thingsj thej governmentj canj doj ifj aj recessionj occurs,j arej toj increasej governmentj
purchasesj andj expandj fiscalj policy.j
Duringj thej Greatj Recession,j Socialj Securityj taxesj werej loweredj toj putj morej moneyj intoj
Americanj citizensj pocketsj nowj insteadj ofj laterj toj helpj boostj thej economy.j Beforej thatj Greatj
Recession,j Congressj hadj passedj thej Economicj Stimulusj Actj ofj 2008j whichj includedj aj checkj
toj citizensj toj increasej spending,j whichj boostsj thej economy.
Onej thingj I’vej comej toj realizej aboutj Covid-19j isj thatj circumstancesj outsidej ofj thej economyj
causedj ourj recession.j Whereasj normallyj itj seemsj likej thej economyj laggingj causesj aj recession.j
Thej wholej globej hadj stoppedj forj monthsj duej toj thej pandemic,j causingj outputj toj stopj asj well.j
Duej toj thej pandemic,j thej governmentj providedj somethingj calledj Pandemicj Electronicj Benefitj
Transferj (P-EBT).j Thisj wasj providedj forj childrenj thatj usuallyj receivej freej orj reducedj lunchesj
hadj theyj beenj inj school.j Ij thinkj thisj isj aj wonderfulj ideaj asj aj lotj ofj childrenj acrossj Americaj relyj
onj schoolj forj mostj ofj theirj meals.j
Onej commonj fiscalj policyj actionj isj toj createj taxj cutsj forj businessesj orj individualsj whichj givesj
peoplej orj corporationsj morej capitalj toj makej purchasesj forj theirj businessesj forj growthj whichj
increasesj demandj overall.j Anotherj commonj fiscalj policyj actionj inj aj recessionj isj increasedj
spendingj toj establishj newj governmentj jobsj toj increasej laborj demandj whichj willj inj turnj lowerj
thej unemploymentj rate.
Onej morej fiscalj policyj measuresj isj toj providej unemploymentj insurance.j Thisj policyj isj
automaticj meaningj itj startsj immediatelyj andj providedj incomej forj thosej affectedj byj thej ratej ofj
unemployment.j Thesej policiesj arej dictatedj byj ourj presidentj orj byj congress.
Thej FEDj canj usej severalj actionsj toj helpj manipulatej thej economy.j Onej wayj isj toj Reducej thej
reservej ratioj byj offeringj loansj thatj arej ofj lowerj interestj ratesj toj attractj customersj inj turnj
helpingj raisej economicj growth.j Anotherj optionj isj toj Lowerj thej Federalj Fundsj ratej toj freej upj
moneyj forj thej banksj whichj canj givej themj thej meansj toj offerj morej attractivej loans.
Lastly,j thej FEDj canj usej itsj ownj reservej moneyj toj buyj governmentj bondsj whichj transformsj
intoj incomej forj thej Unitedj Statesj governmentj puttingj morej moneyj inj thej economy.
Duringj thej 2008j recessionj thej worldj fiscalj policyj wasj toj stimulatej thej economyj soj inj thej
Unitedj Statesj wej offeredj aj stimulusj planj wej practicej taxj cutsj toj boostj thej economy.j Thej
governmentj decidedj thatj deficitj spendingj canj replacej somej lossj duringj thej recession.j Thej
Unitedj Statesj gavej outj aj stimulusj check,j figuringj thatj thisj wouldj encouragej spending,j puttingj
thej moneyj backj intoj thej economy.j Duringj thej covid-19j recessionj thej governmentj offeredj aj
stimulusj plan,j andj alsoj thej governmentj gavej companiesj moneyj toj coverj employeesj inj thej
eventj thej employeej comej inj contactj withj covid-19.j Myj jobj offeredj eightyj hoursj ofj covid-19j
pay.j Thej governmentj offeredj unemployment;j aj lotj ofj peoplej lostj theirj jobsj duringj covid-19.j
Thej governmentj offeredj wherej peoplej didj notj havej toj payj rent,j orj utilities.j Ij knewj peoplej thatj
didj notj payj anyj rentj orj payj theirj utilityj bills.j Peoplej tookj advantage,j Ij feelj andj whenj itj camej
timej toj startj backj payingj yourj rentj andj yourj utilityj bills.j Somej peoplej couldj notj catchj upj theirj
rentj orj utilityj bills.j Youj hadj peoplej notj payingj theirj rentj andj whenj covid-19j endedj itj becamej
hardj forj peoplej toj getj caughtj up.j Therej werej peoplej collectingj unemploymentj andj working.j
Therej werej individualsj takingj advantagej ofj thej governmentj duringj covid-19j andj nowj thatj
covid-19j isj overj thej individualsj thatj tookj advantagej arej nowj sufferingj toj getj caughtj up.j
Unfortunately,j thej economyj experiencedj thej collapsej ofj thej housingj marketj causedj byj lowj
interestj rates,j easyj credit,j detrimentalj subprimej mortgages,j andj overextendedj households.
Thej COVID-19j economicj contractionj wasj duej toj governmentj shut-downsj thatj affectedj
supply,j asj wellj asj demand.
Expansionaryj fiscalj policyj stimulatesj ADj andj expansionaryj monetaryj policyj increasesj thej
moneyj supplyj toj promotej andj increasej inj AD.j
Whenj thej economyj entersj aj contraction,j thej Federalj Governmentj tendsj toj respondj withj aj
decreasej inj taxesj andj anj increasej inj governmentj spending.
Whenj thej economyj entersj aj contraction,j thej Federalj Reservej tendsj toj respondj withj aj decreasej
inj interestj ratesj usingj thej threej monetaryj policyj tools.
Bothj fiscalj policyj andj monetaryj policyj experiencej lagj times.
Recognitionj Lagj –j thej lagj timej betweenj aj changej onj thej businessj cyclej andj thej timej itj takesj
forj analystsj toj seej thej changej inj thej data.
Implementationj Lagj –j thej lagj timej betweenj seeingj aj changej onj thej businessj cyclej andj thej timej
itj takesj forj fiscalj policymakersj and/orj monetaryj policymakersj toj determinej aj resolutionj andj toj
implementj thej resolution.j Inj thej US,j fiscalj policyj hasj aj greaterj implementationj lagj timej thanj
monetaryj policyj does.Responsej Lagj –j thej lagj timej betweenj thej policyj implementationj andj thej
responsej byj consumersj andj firmsj toj changej behaviour.
Whyj arej lagj timesj significant?
Whatj causesj thej lagj timesj forj fiscalj policy?
Whatj causesj thej lagj timesj forj monetaryj policy?
Thej Federalj Reservej hasj beenj increasingj interestj ratesj toj putj thej brakesj onj inflationj asj wej tryj
toj recoverj fromj thej COVID-19j mandates,j shut-downs,j andj restrictions;j however,j thej demandj
sidej isj notj thej problem.Thej problemj isj thej supplyj side.
Whatj doj youj recommendj forj thej optimumj policyj combinationj ofj fiscalj policyj andj monetaryj
policyj forj thej USj economyj toj dealj withj COVID-19j causedj downturnj andj inflation?
Ij wasj notj awarej thatj healthj carej spendingj increasedj thatj much.j Itj makesj sense,j ofj course.j Ij
rememberj duringj thej greatj recession,j manyj businessesj reducedj hoursj orj staffing.j Ij don'tj recallj
thej significantj bounce-backj effectj thatj we'vej seenj duringj thej pandemic.j Manyj businessesj thatj
remainj openj arej strugglingj duej toj thej increasedj volumej afterj openingj upj againj andj thej
reducedj staffingj levels.j I'vej seenj thesej symptomsj inj bothj thej restaurantj andj hotelj industries.j
Thisj strugglej isj truej bothj inj theirj businessj andj supplier'sj enterprises,j asj wellj asj thej logisticsj
challengesj withj gettingj rawj materials.j We'rej experiencingj bothj problemsj withj availablej staffj
asj wellj asj incomingj rawj materialj shortagesj atj thej companyj Ij workj forj asj well.
