Liberty Discussion Session for the month of September 2020 was held on 25th September 2020 via the virtual platform of Google Meet. The discussion was based on the selected reader titled “Coronavirus, easy money, and the bad penny of Keynesian economics” authored by Dan Mitchell.
The content of the article was quite provocative to the conventional method of recovering or resurrecting the economy through fiscal and monetary expansive policy as adopted by the economies around the world. And, it undoubtedly drew defensive arguments among participants of the discussion who kept significant faith in the Keynesian principle of economics. At first and foremost, while some participants did assert expansive welfare-based fiscal and monetary policy as suggested by Keynesian economics during the dire economic period as more of a populist decision favorable for politicians despite its effectiveness. Others defended this school of thought with the argument that advocacy of Keynesian economics has pure macroeconomic implication with a reasonable degree of success regardless of it containing a populist characteristic. As such, the participants also argued that favoring a political move with populist attributes was definitely not the objective of Keynesian advocacy in the first place.
Likewise, participants also disagreed with the author regarding the nature of spending or expenditure as merely being the result of the economic situation and not a trigger of it. As such, some participants hugely believed that spending in fact maintains a reinforcing relationship between economic growth, and therefore is also a trigger of growth. Also, participants majorly disagreed with the author’s statement regarding fiscal and monetary stimulus measures being ineffective to recover economies from past financial crises. Moreover, participants disagreed that temporary tax cuts or holidays as loathed by the author would not stimulate the economy temporarily. But unanimity was received regarding the need for the government to be able to deliver expenditure projects abruptly in order for the fiscal stimulus programs to create timely results. And therefore, governments of countries as Nepal lacking sufficient capacity deliver projects may not be able to benefit from stimulus packages as advocated by the Keynesian philosophy.
Also, it was debatable if the cost of the fiscal stimulus package in the form of increased public debt or increased tax rate in future is justifiable. The question of whether the trade-off regarding increased public debt in the economy is worth the benefit of having an economy recovered through temporary stimulus packages lingered until the end of the discussion.
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