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The Invisible Crisis: Fiscal Policies in a Pandemic

The novel coronavirus pandemic has brought lasting impact on every aspect of previous normality and has most importantly led to the death of approximately 1.1 million individuals. In addition to this invisible threat, the pandemic has demonstrated the true resilience of national governments and their ability to protect its citizens, in respects to both their health and the economic devastation that has ensued as a result of the loss of stability in the business ecosystem. Through the course of the pandemic governments have risent to the task of stabilizing the economic crisis, largely utilizing economic instruments to bolster the various sectors of business that have been adversely affected as a result of increasing public health measures. As the threat of the virus has impacted every democratic economy, while authoritarian regimes have neglected the health impediment, the range of instruments available has steadily decreased with an estimated $12 trillion USD already spent globally by governments attempting to insulate the negative ramifications of the virus. However, the pandemic continues to delay a rapid transition into a recovering economic state, particularly as resurging cases continue to be reported and public health measures becoming reinstituted, the downward pressure on critical demographics, such as employment, will continue to demand fiscal solutions. The uncertainty of the pandemic’s duration coupled with the vast amount of capital spent by national governments has left the global cash-strapped community with an unprecedented crisis requiring further stimulus.

In the context of the pandemic, governments have showcased a diverse array of policy tools utilized in order to restore stability, which is particularly important with key economic leaders within a global economic system dependent on comparative advantages and ultimately arbitrage. Governments are able to manage an economy utilizing policy tools through either fiscal or monetary actions, respective to their policy objectives. Specifically, US fiscal policy reflects the actions of the government with respects to tax revenue and expenditure, which is decided by the presidential administration and the US Congress. In understanding the critical linkage between fiscal policies and budgetary capacity, consequently there is a disparity that arises as per the result of economic inequality at the global level and thus the pandemic has disproportionately impacted the poor economies of the world. Despite these inhibiting economic factors, around the world governments have employed a multitude of various fiscal stimulus packages that address the record-setting unemployment figures along with restoring forms of public confidence. The institutionalization across all economies to favor public health has been host to criticism in hampering business operatibality, however, it is conversely necessary to underscore the role public health measures have in strengthening public confidence which leads to consumer spending. Though these restrictive roles take an important role in preserving life, fiscally-robust governments have gone further and enacted fiscal measures to support the members of the economy affected by the pandemic. 

Despite a global imbalance in credit-lending capacity that is required in order to sustain a unified global economic recovery, wealthy government administrations, such as the United States have deployed an extensive set of fiscal measures targeted towards mitigating collapse. One example may be seen with unemployment rising to nearly 16% of the U.S. population in March, Congress passed a bill that contained an expansive unemployment benefits program sending Americans direct cash stimulus. Through ensuring individuals in the workforce receive lost wages this enables the members of the economy to preserve a standard of living. In addition to working-class Americans receiving a government stimulus, the congressional bill included liquidity support for the small-to-medium sized enterprises (SMEs) in order to prevent credit-borrowing businesses from defaulting on loans. Although these supportive measures have contained the short-term outlook through both the virus by enacting public health measures, as well as the economic collapse through federal budgetary policies, the fiscal inequality in the global economies presents further challenges in the long-term. 

In the gradual reopening of individual economies, per the recommendation of health experts, this fiscal inequality will become amplified in the country’s speed of recovery, the fiscal policy options available, as well as the ability to remain competitive in the global economy. Similar to the ability to respond, poor economies face constrained budgetary capacities and growing pressure to sustain economic activity while maintaining its assurance to protect the public health by not reopening too quickly. The pandemic has presented a binomial dichotomy for many emerging markets, with one choice being to ensure public health, while the other is to promote economic activity through reopening as fiscally impoverished nations do not have wealth to provide sufficient stimulus. Once the viral spread along with its subsequent economic shocks are stabilized, fiscal policies in the global economy will become distinct in the unique country-specific challenges they seek to combat. Among the emerging economies, which prior to the pandemic faced budgetary hardships, will be required to engage in strategy “to adjust over the medium term, striving to protect public investment and transfers to lower-income households”. These policies will differ vastly from the economic powers with robust budgets that will be needed to engage in a medium-term recovery program; low interest rates of advanced economies will offset the historical unemployment figures thus enabling a progression to recovery. 

The stagnating response to the pandemic, in terms of economics and public health, has revealed the critical necessity of restructuring traditional economic conceptions. As every crisis has revealed lessons to be learned, governments across the world must make reflections of the effectiveness in their policy choices. Ultimately, governments must recognize the incompatibility of the current economic framework, largely based in the industrialist sector, to instead place a focus on sustainable solutions with both technology and renewable energy at the forefront. As witnessed through the pandemic, change is often met with hesitance and neglect, particularly when normality contains resource wealth. In the future bringing more technological innovation and further necessity for climate preservation, fiscal policies must be aimed at ensuring a greater social safety net to reduce inequality and increase investment into public infrastructure, such as education and health to mitigate the potential of another virus from arising. 

Bibliography

BLS, US. “Unemployment Rates Rose in 29 States and the District of Columbia in March 2020.” U.S. Bureau of Labor Statistics. U.S. Bureau of Labor Statistics, April 23, 2020. https://www.bls.gov/opub/ted/2020/unemployment-rates-rose-in-29-states-and-the-district-of-columbia-in-march-2020.htm. 

Gaspar, Vitor, Paulo Medas, John Ralyea, and Elif Ture. “Fiscal Policy for an Unprecedented Crisis.” IMF Blog. IMF, October 15, 2020. https://blogs.imf.org/2020/10/14/fiscal-policy-for-an-unprecedented-crisis/. 

Research, Faculty. “How COVID-19 Has Changed Public Policy.” Harvard Kennedy School, June 24, 2020. https://www.hks.harvard.edu/faculty-research/policy-topics/public-leadership-management/how-covid-19-has-changed-public-policy. 

US Federal Reserve. “What Is the Difference between Monetary Policy and Fiscal Policy, and How Are They Related?” Board of Governors of the Federal Reserve System, August 9, 2017. https://www.federalreserve.gov/faqs/money_12855.htm. 

About Lubomyr Velychko

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