Fiscal rules have been rightly blown out of the water by the covid19 crisis

This was a piece I wrote for the New Statesman.  I had to write it a few times.  It started life as a thing about the first post GE19 budget and how they were going to finesse the issue of sticking to rules in the manifesto, vs satisfying the new ‘Blue Wall’ of Tory seats in the North.  Then the pandemic rightly blew all of those discusssions out of the water.   At some point, when we have got to the point of beginning the end of the lockdown, and can estimate the likely impact of the support measures that were in place during it, the discussion about fiscal rules will start again.   Some paydown bargain will have to be struck between ourselves and future cohorts, many of whom are not around the table to express their opinions, weighing up our rights to spread the burden out into the future against their rights to preserve fiscal space to combat their own generational risks, like future pandemics, and climate change [something we dumped on them of course].

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2 Responses to Fiscal rules have been rightly blown out of the water by the covid19 crisis

  1. The current generation will also bequeath assets to future generations, albeit some of those assets may be intangible. It’s one-sided to dwell on the liabilities that the current generation may, or may not, bequeath to future generations.

  2. Well Covid has certainly blown SOME fiscal rules out of the water: e.g. those proposed by the World’s leading economic illiterate, Kenneth Rogoff (not to mention his fellow idiots at Harvard: Carmen Reinhard, Alberto Allesina, etc). On the other hand Covid has had no effect at all on what might be called MMT / Wren-Lewis fiscal rules. As Wren-Lewis and MMTers have rightly said, there should never be any specific target for the debt or deficit: that is, the debt and deficit should simply be whatever is needed to give us something as near full employment as is possible, without causing excess inflation. Plus interest on the debt should be held at zero (as per MMT) or not far above zero (as per Wren-Lewis). Whether that means a debt/GDP ratio of 10%, 100% or 200% is wholly irrelevant.

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