Monday 30 March 2020

Who will ultimately pay for the Covid-19 pandemic?

Aside from those unfortunates who are paying with their lives, ultimately the economic cost of the Covid-19 pandemic, and the mind-boggling amounts being spent by governments around the world on 'stimulus', 'safety-nets', and myriad expenditures to simply to to keep the modern socio-economic order from falling apart, will be paid by... you and me.

For all the media coverage of 'government expenditure' we have to bear in mind that governments do not have any wealth or income per se. Everything the government owns is, essentially, owned by 'the people'. And, ultimately, all government revenue is sourced from 'the people'. Either via direct income taxes on 'the people', or company taxes (which eventually get paid via 'the people' as costs for goods and services, or via 'the people' as investors when company revenues get squeezed), or via loss of value of existing savings via inflation if the government decides to simply 'print more money' (and hence inflate away the real value of the debts they are accruing). Ultimately every dollar that governments are currently spending to support the economy, provide resources to health care services, guarantee wages or provide stimulus payments or pay unemployment benefits is a dollar that 'the people' eventually have to pay back. It's a bit like a gigantic, unfunded insurance policy where those currently (and in future) fortunate enough to have a job (or savings/investments) will all have to contribute to pay out benefits to individuals or companies that need immediate assistance.

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Alex said...

Hi Ralph

It is nonsense to think that government spending today has to be paid back in the future. The federal government debt is very simply the net savings of the private sector. The people in the future get to consume anything they can produce, a debt number on a government spreadsheet is irrelevant. Inflation is the only risk.

I would encourage you to read this article

Kind Regards

Alexander said...

Read it. Read the critiques such as An attractive but flawed theory.