Some Considerations re Economic Stability

Already it is evident that pandemics don't provide easy answers, when it comes to maintaining economic stability. How to know, who or what could most benefit from assistance over extended periods? Appropriate fiscal policy is no easy feat, yet governments have few options to directly address workplace losses which have occurred practically overnight.

Granted, fiscal support for pressing healthcare needs will remain crucial in the immediate future. Access to testing and other vital services, will also play roles in the time it takes to regain normalcy. But while support for healthcare systems is paramount, some aspects of financial stabilization may not prove optimal in the months ahead.

Determining where financial stabilization could help most, is even more difficult in a time of growing budgetary pressures and extensive long term debt obligations. Hence two questions on many minds at state and local levels, basically come down to this: Which spending options are discretionary? Or, which spending is absolutely essentially for individuals, firms and organizations - regardless of what happens? It helps to recall that while fixed production costs are generally associated with private firms, individuals and families have relatively close equivalents, in many instances.

Washington has finally completed its deliberations for a massive stimulus package, yet this might only be the first. For example, James Pethokoukis expressed concern that the current round of fiscal stimulus may only address a months' worth of necessities.

Fiscal assistance for supply side losses is all the more challenging, since policy makers are tasked with taking the fixed costs of businesses and citizens alike, into consideration. Still, governments still have little choice but to pick favorites, with a fiscal policy approach. Even now, there are ways in which monetary policy functions more efficiently, to "get in the cracks" where fixed cost remedies can't be readily ascertained.

Nevertheless, monetary policy will face its own challenges, due to extensive supply side disruptions from millions of people staying at home. Given this reality, will central bankers remain willing, to preserve full monetary representation at present capacity? In particular, rising unemployment is going to be a real issue in coming months. A record 3.28 million workers filed for unemployment last week, and as the WSJ noted, "The long run of American job growth has ended." Gred Mankiw adds further perspective from data compiled on hourly employees. Already, "hours worked by hourly employees is down by more than 50 percent", and this is approximately 60% of the labour force.

Fortunately, there are improvements to unemployment claim processes in the stimulus package, which will provide additional access for small businesses and the self employed. With a little luck, once people start to return to their workplaces and the economy begins to improve, today's short term fiscal assistance can gradually transition to the broader stabilization methods of monetary policy.

Will monetary policy prove capable of restoring long term growth, once employment levels normalize? Hopefully, yes. Just the same, perhaps better methods are needed, which can take into account the non discretionary obligations which all citizens face, regardless of workplace participation levels. These non discretionary obligations are vital to general equilibrium dynamics, and the act of recognizing them, might better ensure that full monetary representation continues to take place. Non discretionary fixed costs in our daily lives, are an important focus of current fiscal policy. But hopefully, a broader range of non discretionary obligations will gain prominence in monetary policy, once fiscal remedies are no longer necessary.