The economic crisis brought on by the coronavirus pandemic requires fast, large, effective and well targeted fiscal stimulus. While the size of the federal government’s initial three spending packages is appropriate as an initial response, both the shape of that response and the design of future spending measures need to be carefully evaluated.
While the current economic downturn may resemble the beginning of previous recessions, the cause of the downturn is so different, government responses must be structured differently to previous crisis responses. Most of the current contraction in the tourism, retail, food and entertainment industries is the direct result of government health policies designed to ensure social distancing. As a result, traditional approaches to ‘stimulus’ cannot succeed in boosting output in these industries.
This paper provides design principles for evaluating such proposals to ensure that future spending packages are as effective as possible. In the short term, the government must pump not just money into the economy, but also into jobs. And in the long term, if the jobs that governments create in the coming year deliver lasting benefits then our community won’t be ‘saddled with debt’, it will be blessed with new assets.