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The Economic Consequences of COVID-19: The Great Shutdown and the Rethinking of Economic Policy

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  • Matías Vernengo
  • Suranjana Nabar-Bhaduri

Abstract

This article examines the implications of the COVID-19 economic crisis for macroeconomic policy, and the roles of the State and the Fed and monetary policy in the United States economy. It argues that that the main effect will be to reinforce trends that had begun during the 2008 Great Recession in terms of the increasing relevance of counter-cyclical fiscal policies and monetary policy. The scale of fiscal policy responses needed to address the present crisis will have significant implications for the size of fiscal deficits and the federal debt, and are, therefore, likely to face political resistance and calls for fiscal austerity. Not only higher levels of deficits and debt will be necessary, but to some degree planning, not just to deal with pandemics, might become more relevant. Geopolitical concerns, aggravated by the pandemic will be another significant factor contributing to the growing role of the state. The financing needs of the fiscal interventions will in turn reinforce trends with respect to the role of the Fed as the fiscal agent of the Treasury that had been previously witnessed during the Great Depression and the 2007–9 Great Recession.

Suggested Citation

  • Matías Vernengo & Suranjana Nabar-Bhaduri, 2020. "The Economic Consequences of COVID-19: The Great Shutdown and the Rethinking of Economic Policy," International Journal of Political Economy, Taylor & Francis Journals, vol. 49(4), pages 265-277, November.
    • Handle: RePEc:mes:ijpoec:v:49:y:2020:i:4:p:265-277
    DOI: 10.1080/08911916.2020.1857589
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    Cited by:

    1. Doyeon Lee & Keunhwan Kim, 2021. "A Collaborative Trans-Regional R&D Strategy for the South Korea Green New Deal to Achieve Future Mobility," Sustainability, MDPI, vol. 13(15), pages 1-30, August.
    2. Paweł Brzustewicz & Anupam Singh, 2021. "Sustainable Consumption in Consumer Behavior in the Time of COVID-19: Topic Modeling on Twitter Data Using LDA," Energies, MDPI, vol. 14(18), pages 1-20, September.
    3. Sorin-Ciprian Teiusan & Dorina Plescaci, 2022. "An Insight Into Research Of Tax And Fiscal Policy In Response To Covid-19 Crisis," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 37-47, April.
    4. Carfora, Alfonso & Scandurra, Giuseppe & Thomas, Antonio, 2022. "Forecasting the COVID-19 effects on energy poverty across EU member states," Energy Policy, Elsevier, vol. 161(C).
    5. Pompeo Della Posta & Enrico Marelli & Marcello Signorelli, 2022. "COVID-19, Economic Policies and Public Debt Sustainability in Italy," Sustainability, MDPI, vol. 14(8), pages 1-20, April.
    6. Justice Nyigmah Bawole & Zachariah Langnel, 2023. "Administrative Reforms in the Ghanaian Public Services for Government Business Continuity During the COVID-19 Crisis," Public Organization Review, Springer, vol. 23(1), pages 181-196, March.

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