The fiscal response to the COVID-19 pandemic leaves an economically threatening legacy of high budget deficits and public debt.
Australian governments should take action to reduce the burden the stimulus measures have placed on the future economy and taxpayers.
Unlike emergency monetary responses to increase liquidity and loosen credit availability, panic government spending binges — particularly of the cash splash and welfare support kind — cannot be readily withdrawn once announced, and have lasting negative macroeconomic consequences.
The idea that copious government spending necessarily mitigates the macroeconomic impact of a crisis is a Keynesian fallacy.
Suddenly injecting government spending is not akin to injecting liquidity and bank credit via emergency monetary easing, because government spending has to be funded from elsewhere; in Australia’s case, mostly from abroad.
Announcing bonus cash payments and bolstering welfare payments under crisis conditions with public debt already escalating rapidly due to revenue loss is not unlike a household deciding to spend more each week at pricey restaurants while under pressure to meet the mortgage payments.
Please click here to read the full ‘The two great threats of 2020: coronavirus – and Keynes‘ article originally published at BSI Connection, written by Griffith Asia Institute researcher, Professor Tony Makin.