Think of #Government this way: it exists to smooth economic activity over the cycle (ups & downs). Ergo, it exists for no other reason but to ensure output is close to or at full potential. Efficient resource allocation & redistribution are neccesary but insufficient condition.
Government has two levers it can pull on to honour this so called "social contract". These are Revenue (taxes) & Primary Spending (consumption & investment). In a downturn, as in an upturn, #FiscalPolicy is an automatic and/or deliberate toggle of those two levers...
Ideally, government is expected to always note where the economy is on the cycle (early, mid, late cycle etc) to execute efficient #FiscalPolicy. Should government miscalculate the position, fiscal policy could be misguided (e.g. loose when should be tight)...
Consider the current global economic downturn (health crisis induced). #FiscalPolicy has to be geared towards looser conditions (e.g. lower taxes & higher primary spending).This happens: 1. Automatically & with 2. Discretion. BUT, where were economies on the cycle prior?
Before #COVID19, global economic growth faced considerable headwinds from #Trade uncertainty (US vs. Everybody). #FiscalPolicy (e.g. US) was accomodative, as was #MonetaryPolicy. A low interest rate environment meant debt was cheap (governments & firms lapped it up)...
I'll end here and say this: #FiscalPolicy (in developed countries) appears to be the only macroeconomic policy with some space & monetary policy wont lean against it. Globally, the spectre of raising public & corporate debt will come back to haunt all of us given #COVID19..!
@threadreaderapp kindly, unroll...
