{"id":5617,"date":"2020-04-01T12:31:43","date_gmt":"2020-04-01T11:31:43","guid":{"rendered":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/?p=5617"},"modified":"2021-06-15T16:17:58","modified_gmt":"2021-06-15T15:17:58","slug":"the-governments-economic-response-to-covid-19","status":"publish","type":"post","link":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/the-governments-economic-response-to-covid-19\/","title":{"rendered":"The government\u2019s economic response to Covid-19"},"content":{"rendered":"\n

Dr Richard McManus compares the government\u2019s economic policy for the current Covid-19 situation to the 2008 global financial crisis.<\/em><\/strong><\/p>\n\n\n\n\n\n\n\n

Covid-19 has raised questions about the best macroeconomic\npolicy to mitigate the impacts of the virus. The most important policies for\nthe economy in both the long and short-run are those coming from medical\nexperts. However, there is a role to play for macroeconomic policy to ensure\nthat the economic effects of the virus are short-lived. <\/p>\n\n\n\n

In the last few weeks in the UK we have seen two emergency\ninterest rate cuts, increases in money supply into the economy, and billions of\npounds in fiscal stimulus packages with the government guaranteeing loans and\nsalaries. <\/p>\n\n\n\n

The complication with which Covid-19 presents macroeconomic\npolicy prescriptions is that it represents a unique set of macroeconomic shocks\nto the economy. Although the impact on the stock markets is similar to that of\nthe 2008 global financial crisis, the underlying causes that have led to this\nsituation are unique. <\/p>\n\n\n\n

In the first instance, there is a substantial supply-side\nshock as production is slowed down, first in China and then in subsequent\ncountries. This then is followed by a demand-side shock as people stay at home\nand no longer consume to the same degree as normal. <\/p>\n\n\n\n

Typically, economists would look for policy to try and\nmitigate the effects of these shocks to smooth out their effects. For example,\nthe 2007\/08 global financial crisis lead to a \u2018credit-crunch\u2019 as financial\ninstitutions failed and needed to be bailed out by governments. <\/p>\n\n\n\n

This was most clearly demonstrated in the queues for\nremoving money from banks in the UK, most noticeably for Northern Rock. In\nresponse the Bank of England cut interest rates, reducing the cost of borrowing\nand decreasing the incentives to save, increased credit in the financial system\nthrough quantitative easing which increased financial institutions ability to\nprovide credit to firms and individuals, and the UK government embarked on a\nfiscal stimulus package increasing spending and cutting tax rates (for example,\nVAT was cut to 15% in November 2008). All of these measures were meant to\ncounteract the effects of the financial shock leading to lower demand in the\neconomy and higher unemployment; policymakers stimulated demand through the\nchannels in which they have control. <\/p>\n\n\n\n

The response by the UK government (and others) to the economic impacts of the Covid-19 outbreak is different. The impacts of supply across the world of work being restricted to critical roles and the impact of demand of the country being in lock down and social distancing create a necessary drop in economic activity. The government has taken unprecedented measures at great expense of increasing public debt not to counteract these impacts. <\/em><\/strong><\/p><\/blockquote>\n\n\n\n

The policies are present for two main reasons: first, they\ncomplement the health advice of providing safety for employees who can no\nlonger work, stopping them from finding employment elsewhere and potentially\nincreasing the spread of the virus; and second, the policies are designed to\nreduce economic pressures at a time of increasing panic at a time of great\nnational distress. <\/p>\n\n\n\n

Through ensuring incomes during this time the government is seeking to remove the additional strain and pressures that both individuals and society would feel with higher unemployment and uncertainty. Moreover, through the use of targeted transfers, this support is progressively benefiting those poorer and more financially constrained within the economy. <\/p>\n\n\n\n

The hope also is that through allowing the country and\neconomy to go into a controlled descent that if, and when, the medical sciences\nallows for controls to be lifted that the economy can recover quicker. <\/p>\n\n\n\n

Ultimately higher levels of government debt need to be\nrepaid in the future. Through providing this social security now the government\nare taking away one of the pressures experienced by households during the\npandemic. <\/p>\n\n\n\n

Dr Richard McManus is Director of Research Development for the Christ Church Business School.<\/a><\/em><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Dr Richard McManus compares the government\u2019s economic policy for the current Covid-19 situation to the 2008 global financial crisis.<\/p>\n","protected":false},"author":242,"featured_media":5625,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[533,3902],"tags":[3358,3365,3409,3414,3418,3406],"class_list":["post-5617","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-research","tag-coronavirus","tag-covid-19","tag-economy","tag-finance","tag-government-economic-policy","tag-macroeconomics"],"acf":[],"aioseo_notices":[],"authorName":"Jeanette Earl","featuredImage":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-content\/uploads\/sites\/437\/2020\/04\/Rishi.jpg","postExcerpt":"Dr Richard McManus compares the government\u2019s economic policy for the current Covid-19 situation to the 2008 global financial crisis.","_links":{"self":[{"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/posts\/5617","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/users\/242"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/comments?post=5617"}],"version-history":[{"count":3,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/posts\/5617\/revisions"}],"predecessor-version":[{"id":7489,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/posts\/5617\/revisions\/7489"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/media\/5625"}],"wp:attachment":[{"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/media?parent=5617"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/categories?post=5617"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.canterbury.ac.uk\/expertcomment\/wp-json\/wp\/v2\/tags?post=5617"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}