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EXCLUSIVE | US coronavirus relief package is 'political gimmick', says economist Dr Christopher Lingle

The economic expert said similar measures taken in Japan in late 1980s offer clear evidence that such stimulus doesn't help
UPDATED APR 3, 2020
(Getty Images)
(Getty Images)

The US government has initiated an economic stimulus package in the wake of the coronavirus pandemic that has affected over a million people worldwide and killed over 53,000. In the US, over 240,000 people have been hit while nearly 6,000 lives have been lost. The Donald Trump administration has passed the package worth $2 trillion to prevent a massive economic disaster although there were initial objections from the Democrats who felt it could lead to favoritism.

MEA WorldWide (MEAWW) took the opportunity to speak to Dr Christopher Lingle, an economics expert, to discuss how good the package is for the American economy. Dr Lingle has a doctorate in economics from the University of Georgia and has worked at universities in Africa, Asia, Europe, Latin America, besides the US. Currently, he is a visiting professor of Economics in the Escuela de Negocios at Universidad Francisco Marroquín in Guatemala (since 1998) and works in various capacities in countries like Australia, India, Nepal and Sri Lanka.

Dr Christopher Lingle (Facebook profile)

Here are a few questions that MEAWW asked Dr Lingle on the economic stimulus package that the US government has undertaken to provide relief to its pandemic-stricken economy.
 
Do you think the economic stimulus package will help the economy to override this crisis?

First, the economic crisis was caused by a monumental miscalculation of lockdowns and such would lead to economic lockdown. Second, the concept of “economic stimulus” is perhaps the greatest of tragedies to affect the economy.

As it is, the efficacy of the “economic stimulus” base is a flawed model that predicts either artificially-low interest rates (monetary pumping) or fiscal deficits (funded by debt). The underlying mistake is a misguided belief that economic growth is driven by consumption.

Consumption is an outcome of economic growth and cannot be a cause of it. As a matter of logic, even a 10-year child could understand (but is a mystery to PhDs in economics), something must be produced to be consumed.

It turns out that economic stimulus policies do not aim at raising productivity, an essential element of rising economic growth. They involve only transfers (primarily through new debt creation) or subsidies (perhaps funded by redistributive tax policies that merely take from one pocket to put into another) or central bank manipulations of interest rates or money supply growth. None of these change economic fundamentals for the better.

Speaker of the House Nancy Pelosi (D-CA) discusses the stimulus bill known as the CARES Act after the bill was passed at the U.S. Capitol on March 27, 2020, in Washington, DC Getty Images)

The impact of Japan's policy responses to the bursting of its economy-wide bubble at the end of the 1980s offers clear evidence of the abject failure of economic stimulus.

If economic stimulus truly worked to restore economic vitality, rising incomes would provide the basis to pay down public-sector debt incurred to finance deficits.

As for the artificial lowering of interest rates, these have allowed low productivity, low-return business models to begin to operate and continue to compete for resources against more productive activities.

Each time the stimulus failed to achieve the predicted results, instead of abandoning the model, it was concluded not enough was done. So more and larger fiscal deficits were introduced, over and over again. Each time the lower interest rates failed to achieve the predicted results, it was decided they must go lower and lower.

It is as if someone is in a hole and needs to get out, but the only thing they know to do is keep digging.
 
Some Democrats have said that the package is not helping the undocumented immigrants although they pay taxes, your thoughts on this?

The spending package being undertaken in the US is nothing more than a political gimmick. It is not because anyone is undocumented or not -- no one should be receiving assistance. Fiscal deficits, in my opinion, violate the intention of the great experiments with democracy. Democratic governments were seen to have very limited powers to avoid the sort of arbitrary decisions made by legislators. And they were meant to be facilitators for all people to advance themselves with equal rights and protections. It was never expected that legislatures would be able to create privileges in the form of subsidies or protectionism or to use the tax system as a method of redistribution.
 
Economically, does the pandemic sees China as a winner in the long run?

It is hard to see that these events will benefit China. The combination of the economic slump along with a growing mistrust of the central government is likely to weaken the single-party regime that governs China.
 
Soon, a call has to be taken between a lockdown and economic collapse. Do you think there is a way to avoid the ultimate disaster?

Political responses in the face of the coronavirus pandemic will prevent adaptations and adjustments to new and changing circumstances that can only be handled by the private sector. Democracy creates incentives for politicians to do the wrong thing and for citizens to demand what they are not entitled to. Alas, even a robust Constitution like that in the USA is easily flaunted, as was seen when FDR began expanding the role of the federal government in the wake of the Great Depression. The same was seen after 9-11 and now.

In the end, just as in the case of FDR, few of the "emergency" or "exceptional" powers will be withdrawn. Coronavirus, like war, is the health of the State.

Franklin Delano Roosevelt of FDR had led the US in the times of the Great Depression in the late 1920s and early 1930s (Getty Images)

What about "shared sacrifice"? as it is, almost ALL costs are borne by the private sector, whether business owners or workers (bankruptcies, vast job losses, reduced pensions, etc), while public sector employees and elected officials give up basically nothing. They have no "skin in the game", so they are much less sensitive to the impact of policies imposed on others.

Instead of more spending, it would have been far better to remove obstructions from regulations, end the Jones Act (that raises costs of all seaborne freight into or out of the US), reduce taxes and remove ALL tariffs, eliminate the minimum wage.

Most of the policy actions are grandstanding by politicians, The press conferences by Governor Andrew Cuomo of NY are a display of such posturing. Everything was about expanding political powers & control over resources, but nothing about how they can make markets work better to help solve these problems.
 
Could this be a post-war like situation for the West? But this time, the US too is suffering badly

It is worse and is probably going to be harder to recover from.

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