Three lessons from government spending and the post-pandemic recovery

The COVID 19 pandemic necessitated a global fiscal response that was not seen since WWII. Without delay, governments around the world appropriated budgets that dwarfed any other post-war crisis policy. Meanwhile, the pandemic revealed many fault lines in the economy: poorly paid and vulnerable essential workers, an integrated global supply chain that can lock up, low levels of public health preparedness, and inadequate mobilization. But the large-scale public expenditures also corroborated some key tenets of Modern Money Theory (MMT). This chapter elaborates on three of them: 1) money is not scarce, 2) unemployment is a policy choice, and 3) inflation is not the inevitable a result of large government spending. The pandemic experience points to the need to rethink conventional stabilization policy along the lines suggested in the MMT literature.