Bail Out The Middle Class? Not Holding My Breath But Somewhat Hopeful
The corona epidemic is causing economies to be shut down to a large degree all over the world. This will lead to layoffs and businesses and individuals becoming insolvent pretty soon. Because we have fiat money, the only correct way to deal with this is to print central bank money and distribute it the right way to prevent long lasting or permanent damage from this short-lived but severe external shock. It would be optimal if the economy could just take a short break and pick up from where it left off. I don't know the extent to which that is possible but it should be the goal.
But isn't it wrong to pay people a lot of money for sitting at home doing nothing? Not, it's not because that's exactly what we desperately want people to do for the next few months to ensure that there will be enough ICU capacity for the seriously ill during each local peak of the epidemic. For a lot of people, it would be effectively illegal to go to work right now.
But won't it cause very high inflation? No, because inflation is influenced not only by the quantity of money in circulation but the velocity at which it changes hands, which has taken a massive hit. We're in a massively deflationary environment right now no matter how much money is being printed. If you use monetary policy to make sure companies that must shut down operations for a few months won't go bust but can continue operations as soon as the emergency is over, then you'll have jobs for workers to return to and the workers themselves won't lose their homes.
If the powers that be fuck this one up, it is virtually guaranteed that the political troubles that the world has seen in recent years will have been nothing but a preamble to what is to come. Somewhat dissatisfied Americans have already elected the narcissistic but mostly harmless clown Trump. The far right has been gaining sufficient popularity all over Europe to force the established parties to form unconventional alliances to keep the far right out of cabinets - even in Germany. But when shit really hit the fan in the early 1930's, German voters made the Nazis the largest party, which they used to stage a coup after president Hindenburg died.
I'm predicting that if the powers that be shaft the middle class, they will find themselves hanging from lamp posts this time.
