Levy Economics Institute Newsletter

Citing Research Scholar Michalis Nikiforos' observation that "the record-high stock prices the president routinely touted became disconnected from companies' underlying value," a March 28th Washington Post article by David J. Lynch claims "the pandemic exposed vulnerabilities that had accumulated during a record-long expansion and years of ultralow interest rates—and which now could make it harder to recover from a recession."

The Guardian's April 8th editorial suggests that "what is possible in dealing with coronavirus can be paid for. Money is not the issue." They cite Yeva Nersisyan and Senior Scholar L. Randall Wray's recent assertion in the Multiplier Effect that "the real limits faced by the government before the pandemic hit were far less constraining than the limits faced after the virus had brought a huge part of our productive capacity to a halt" as evidence that "there are more important things to worry about than government debt."

And in their own April 17 op-ed for The Guardian, Nersisyan and Wray stress that Modern Money Theory "is not a prescription, but merely a description of what actually happens," and the current crisis "has clearly demonstrated what should have been obvious already: provisioning society ... is not a financial issue." They suggest we can mobilize our resources in a manner similar to our World War II response, with the hope that "the coronavirus crisis will not be as destructive as the Great Depression, but if there is one thing it should destroy, it's the myth of the deficit."

Because "a viral epidemic, unfortunately, does not just sicken families; it also sickens the economy, and ours is quite vulnerable already," an interest rate cut may not be enough to spur investment and growth as the US formulates its response to COVID-19. In her first of two op-eds for MarketWatch, Research Scholar Pavlina R. Tcherneva calls instead for an "aggressive public-health-services mobilization and an economic stabilization package. And that's the job of Congress, not the Fed."

In the second, Tcherneva calls for a wartime-like mobilization of resources, including a federal job guarantee, to ensure the coronavirus pandemic does not lead to decades of elevated unemployment, suggesting that "only big government, big public investments, and big public-employment programs will ensure a quick bounce back, rather than another protracted jobless recovery," a sentiment she echoes to the New York Times' Peter S. Goodman, as well as in several recent interviews. Hear more from her discussion with Bloomberg's financial team, as well as on the Bloomberg Surveillance, Opinion Has It, and Wharton Business Review podcasts, and Hill TV's morning show, Rising.

Alexander Williams joins Joe Weisenthal and Tracy Alloway, hosts of Bloomberg's Odd Lots podcast, to discuss how his findings in Policy Note 2020/2, "Stabilizing State and Local Budgets through the Pandemic and Beyond," can help the already-fragile US economy recover from the effects of COVID-19.

A new study on Brazil by Research Fellow Luiza Nassif-Pires (with coauthors Laura Carvalho and Laura de Lima Xavier) demonstrates that comorbidities are more prevalent among Brazilians with low educational attainment, indicating that poor people are more likely to be severely affected by COVID-19. Results of their study have been reported on in the Brazilian press, including Folha de São Paulo and Jornal da Universidade de São Paulo. (all links in Portuguese)

Estimating that private demand could be weak for 18 months or more, Research Associate Stephanie Kelton tells Mehdi Hasan of the Intercept's "Deconstructed" podcast that we must "decrease the amount that people are required to pay out each month and increase what's coming in because that's the only way people are going to be able to hold it together." And in her March 21st op-ed for The New York Times, she explains that "only the federal government has the means to step up and save the economy," suggesting it "can and should use this opportunity to make ambitious, lasting improvements."

Speaking to Daniel Bush of PBS NewsHour on April 2nd, Kelton noted "we had these extreme vulnerabilities" long before the pandemic exposed them, suggesting that "we don't have the robust social safety nets that many European countries have, and we pay the price for that." Her April 8th interview with Bloomberg's Stephanie Flanders suggests, however, that in spite of the deficits we have run in the past, we have the policy space to take action.

Quoting Wray, Kelton, and frequent Minsky Conference keynote speaker, former PIMCO Chief Economist Paul McCulley, who asserts that "it's an epic moment in terms of breaking down the orthodoxy of church-and-state separation of the fiscal and monetary authority," The New York Times' Matt Phillips uses MMT to illustrate how we can replace "a few months of American economic activity with a flood of government money."