IMF chief economist Gita Gopinath has taken to the pages of the Financial Times to call for massive global government spending.
Fighting the worst economic downturn in living memory, policymakers around the world have responded forcefully. Discretionary fiscal support of about $12tn has eclipsed previous records. Central banks, by going big with monetary easing, liquidity injections and asset purchases, have prevented financial catastrophe. Now we are in a global liquidity trap. The ascent back from what I have called “the great lockdown” will be long and fiscal policy will need to be the main game in town…
Fiscal policy must play a leading role in the recovery. Governments can productively counter the shortfall in aggregate demand. Credit facilities installed by monetary authorities can only assure the power to lend but not to spend, as US Federal Reserve chair Jay Powell has noted. Fiscal authorities can actively support demand through cash transfers to support consumption and large-scale investment in medical facilities, digital infrastructure and environment protection. These expenditures create jobs, stimulate private investment and lay the foundation for a stronger and greener recovery. Governments should look for high-quality projects, while strengthening public investment management to ensure that projects are competitively selected and resources are not lost to inefficiencies…
The importance of fiscal stimulus has probably never been greater because the spending multiplier — the pay-off in economic growth from an increase in public investment — is much larger in a prolonged liquidity trap…
This is a once in a lifetime crisis. Policymakers have responded strongly, averting an even deeper recession. Monetary policy has and will remain central to this effort, but with the world in a global liquidity trap it is time for a global synchronised fiscal push to lift up prospects for all.
Of course, talk of a liquidity trap is Keynesian nonsense. Fiscal policy does nothing but take through taxes, new borrowing or monetary inflation funds from the private sector and put it in the crony, inefficient central planning world. It lowers the standard of living for all.
From the book’s blurb:
Henry Hazlitt did the seemingly impossible, something that was and is a magnificent service to all people everywhere. He wrote a line-by-line commentary and refutation of what he considered to be one of the most destructive, fallacious, and convoluted books of the century. The target here is John Maynard Keynes’s “General Theory,” the book that appeared in 1936 and swept all before it.
In economic science, Keynes changed everything. He supposedly demonstrated that prices don’t work, that private investment is unstable, that sound money is intolerable, and that government was needed to shore up the system and save it. It was simply astonishing how economists the world over put up with this, but it happened. He converted a whole generation in the late period of the Great Depression. By the 1950s, almost everyone was Keynesian.
But Hazlitt, the nation’s economics teacher, would have none of it. And he did the hard work of actually going through the book to evaluate its logic according to Austrian-style logical reasoning. The result: a nearly 500-page masterpiece of exposition.
Gopinath needs to read the book. But, of course, she got to her position by understanding power politics better than economics. She has been reading too much Machiavelli and not enough Hazlitt.