The past 16 months or so have been fascinating. As we entered the 2020s, the world was a simpler, happier place. People got together in public settings to socialize and strategize. In contrast, these days, we just sequester and soliloquize. The other change that you may not have noticed is the way peoples’ political leanings seem to have impacted and filtered their views on the public policy responses to COVID-19.
The world changed in early 2020. The public policy response grew out of a hastily agreed consensus about how to deal with that change. To use a phrase from south of the border, the response was ‘bi-partisan’, meaning it was a sort of ‘all hands on deck’ response that knew no ideology and had its base firmly in the camp of what had to be done in light of a threat the likes of which had not been confronted in a century. As a result:
- Stores, offices, restaurants, and all manner of public places were temporarily closed
- Everyone was told to stay home if possible and to maintain an appropriate ‘social distance’
- Interest rates were slashed to essentially zero
- Governments of all stripes throughout the western world started handing out cheques to those who ‘might’ be in need
It would be difficult to overstate how this approach was widely seen as necessary from both an economic (protect the jobs) perspective and from a public health (flatten the curve) perspective. There was some trepidation, sure, but there was also an overwhelmingly broad agreement that we, as a society, were doing the right thing. What we did in the late winter and early spring of 2020 was to overprescribe both fiscal and monetary levers to do everything humanly possible to avoid what would almost certainly have been a catastrophe had we not done it. Mercifully, it worked!
Now that more than a full year has passed since the economic crisis reached its nadir, we are in a somewhat different place. Even as public health measures are largely still in place and largely agreed upon, the viewpoint on the economic front has opened a divide. Specifically, most people remain in agreement with monetary policy, but fiscal policy has become a hot potato. What I find interesting is that the two were always promoted as a package deal. The objective was to sustain and ultimately stimulate the economy using whatever tools were available. Moreover, if those tools were both correct and mutually re-enforcing, then having them joined at the hip should be seen as a positive omen.
Here’s the thing: spending like mad only makes sense if interest rates are close to zero. No one proposed spending at record levels previously because: a) it didn’t seem necessary because the economy seemed fine; and b) it would have been economic suicide even with relatively low interest rates. To my friends who continue to support the monetary response while simultaneously criticizing the fiscal response, I say: “be serious”. Did anyone seriously think that re-calibrating rates down to all time low levels would not cause governments to borrow (sorry, “invest”) just as it has caused people to invest (sorry, “borrow”)?