A Macro-Theoretic Exploration of Some Covid-19 Induced Constraints on Economic Policy

The Covid-19 pandemic has spawned a crisis whose dimensions encompass the domains of health and the economy. The latter is on account of the use of non-pharmaceutical interventions such as lockdowns in order to deal with a highly contagious disease. Though some vaccines have emerged, lockdowns of varying degrees are still required since geographical coverage of vaccines is uneven, the protection afforded by vaccines is only for a finite period of time and new variants may escape existing vaccines. This provides the context within which economic policy could intervene. Monetary policy is either unavailable or ineffective, especially when the neoliberal project is hegemonic. Therefore, the specific policy instrument that tends to be utilised is fiscal policy wherein it is postulated that the government tries to achieve a target degree of capacity utilisation. It is demonstrated within the framework of a heterodox macroeconomic model that considerations involving macroeconomic stability (and political economy more generally) may cause this target to be below what is warranted by public health requirements. The paper concludes with some suggestions for future work in this research direction.