Stop and Rethink Economic Policy: Governments seem hell-bent on creating a new Depression.

• Author: Connolly, Bernard

The coronavirus has had appalling human consequences, both individual and social. But its macroeconomic impact could have been minimal--irrespective of reductions in recorded GDP occasioned by lockdowns and social-distancing restrictions--had governments bothered to analyze it and framed policies accordingly. Instead, they are shaping up, in summer 2020, to make the most catastrophic errors of macroeconomic policy since the early 1930s. In conditions in which social and political conflict are worryingly prevalent, both within and between countries, such mistakes would bring a real risk that the very worst aspects of the 1930s could be revisited.

GDP does not measure "happiness"; nor should it attempt to, for any such attempt would be the road to caesaropapist totalitarianism. There is a very meaningful sense in which a fall of even, say, 35 percent in GDP during lockdown periods does not matter in terms of macroeconomics--or more accurately, given the inadequate nature of government responses, need not have mattered. The lockdowns meant that consumption of a very wide range of services was impossible; the result was a very sharp fall in GDP (and of course there were also knock-on effects on business investment and residential construction). But the true first-round cost of the restrictions was a deferment of pleasure (and no doubt by far the biggest element of that deferment was in terms of the things which, with due deference to the Beatles, money just can't buy). In the case of some of those desirable non-marketed things, deferment may have meant abandonment (and, of course, the lock-downs created a great deal of social, emotional, educational, and mental-health suffering). That deferment, or even loss, of enjoyment becomes a macroeconomic problem only if there are second-round "multiplier" effects during and after the period of restrictions and if the fall in recorded GDP is accompanied by a reduction in the capacity to supply marketed consumption goods and services when the restrictions are lifted. That is, it is a problem if workers in the affected sectors lose their jobs and their incomes and thus cannot buy other goods and services to the extent that they normally would, and the firms for which they work go out of business (meaning that the supply of such services is reduced, at least for a time, from pre-coronavirus levels even when the restrictions are lifted, and "structural" unemployment increases). It is, to put it bluntly, an economic...