op_mazzucato1_Hagen HopkinsGetty Images_wellbeingbudgetnewzealand Hagen Hopkins/Getty Images

Long Reads

English

Toward a New Fiscal Constitution

, 

With the COVID-19 pandemic forcing governments to spend on an unprecedented scale to sustain businesses and households, there has never been a better time to restore the state to its proper role as a rudder for the broader economy. The market alone is simply no match for the challenges of the twenty-first century.

LONDON – The COVID-19 pandemic has had an immense, unpredictable, and lasting impact on economies around the world. As a result, governments have been given an opportunity – and an imperative – to rethink the role and purpose of fiscal policy.

A new approach is long overdue. Since the era of British Prime Minister Margaret Thatcher and US President Ronald Reagan, the prevailing economic orthodoxy has effectively denied the state’s potential investment function and made balancing the budget an end in itself. This indifference to both the direction and level of economic activity rendered the 2008-09 crash all but inevitable, and the subsequent rush to austerity weakened the recovery. Now, the simultaneous collapse of supply and demand following the arrival of COVID-19 has made neoliberal orthodoxy doubly untenable.

There is, however, little evidence that any new fiscal thinking is underway. Yes, emergency financing is being deployed. But unless this spending is structured, the post-2008 outcome will be repeated, with the liquidity driving up asset prices in financial markets but doing little to help the real economy.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

or

Register for FREE to access two premium articles per month.

Register

Support High-Quality Commentary

For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world's foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.

But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.

As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.

By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.

Subscribe Now

https://prosyn.org/9OY7UXr