Recently, the Federal Reserve declared that it would use the policy tools for pushing inflation out of the normal bounds. It is a reminder the economic and financial world has layers of a thick monetary shroud. And the central bank covers deprive the supply-side reforms, fiscal policy, and the financial market reforms from the urgency required for innovation and activation.
Paul Haarman mentions shifting from the monetary to the fiscal policy.
Today, the fiscal policy is in an emergency mode. The governments remain more focused on the requirement to restart the economies and lesser on the long-term structural needs. It’s despite the 100 bn Eur recovery plan execution in France, which is a correct step.
And since the monetary momentum is towards the extreme, the after COVID policy environment can change from remaining a monetary policy for a decade to an intensive fiscal policy and the supply-side reforms. And there are many reasons for this.
The action that central banks need to take
Paul Haarman says that the monetary policy is arguably going to its limits about deploying the central bank balance sheets. It’s also a fact that central bankers are trying to fix the problems, including inequality, ambiance, and racism. And today, there is the Democratic suggestion of Congress to alter the Federal Reserve mandate to bring down racial inequality. And it’s better to leave it to the policy architects and politicians instead of the central bank blunderbusses.
The policy-making values
Considering this background, the probability of passing on the central banks’ policy baton towards the finance ministers is interesting because of two crucial trends. The first trend is how the current labor market is evolving. And the second change is the process of value percolation in the policy-making process.
The aspect of public goods
The economic outcome of the pandemic points towards clear risks. Also, the public emergency concerning the virus managed to gather appreciation for the public sector workers. Most of them, in recent times, have got deprived of specific resources by the government they cater to consistently. And to a great extent, an achievement of the pandemic outbreak has highlighted the importance of particular occupations.
Paul Haarman talks about the labor reform
According to the economists and financial experts, you can do two things for the Anglo-Saxon countries and a few emerging economies. First, one can reintroduce a sound narrative concerning the relevance of public projects in societies and economies and support it with investments. And the second, to initiate a policy experiment that will connect the social value of professionals to the economic policy. It might result in tax depreciation for the doctors and an increase in tax for the derivatives traders.
However, in conclusion, Paul Haarman says that he isn’t aware of governments connecting the social value of jobs explicitly to the tax policy. But he anticipates that in a post-pandemic world, this is an experiment that will get importance.
