Old economics supporting new economics
SET and BEST cash, the Keynesian Economic Mode and COVID-19Wednesday, December 30, 2020
The Keynesian Economic Model put forward by John Maynard Keynes is anchored on the idea that in times of negative economic shocks, especially in the short run, the Government has a pivotal role to play in stimulating or maintaining appreciable economic activities by injecting money into the economy.
This school of thought has been feverishly opposed by some economists who view Keynesianism as unsustainable and fiscally reckless, as to provide stimulus in a beat-down economy would be the result of either borrowing or using up budget surpluses. It is however pertinent to point out that the Keynesian model of economic management is quite pervasive in contemporary economies and has become the go-to approach for many countries when faced with shocks that negatively impact economic activities.
The economic records will reveal that independent Jamaica has been through a few notable periods of economic downturn which would have had notable adverse effects on the normal functioning of the economy. These shocks, of course, would have occurred with successive governments being unable to provide any relief in the economy from the monetary or the fiscal side without compromising other important economic variables, namely increasing the country's debt or using up needed revenue. Therefore, a country with an economy such as Jamaica's needs to have its finances in good order before contemplating such an undertaking.
Prior to the arrival of the novel coronavirus Jamaica's economy was in the best shape it has been for decades. The macroeconomic standing of the country was in a relatively strong position. This was preluded by successive governments' ability to achieve budget surpluses in tandem with enjoying one of the longest periods of economic growth in the country's history. This, when coupled with other astute economic management manoeuvres, allowed the Government to reduce the country's debt and simultaneously reduce taxes while maintaining a healthy revenue flow. Therefore, when COVID-19 punctuated the Jamaican economy, the fiscal position of the country was such that the teachings of Keynesian economics could be placed on full display in a fashion seen in Jamaica for the first time.
First discovered in China in late 2019, and quickly travelling to other major economic centres around the world, COVID-19 and its resultant global pandemic brought many economies to a standstill. The first confirmed case of COVID-19 in Jamaica was reported on March 10, 2020. There then ensued a chain of events that saw the economy screech to a virtual halt.
The blow to the economy was direct and ubiquitous, compromising every sector, as the country came painstakingly close to a complete lockdown. The economy was being bombarded with a phenomenon that would present challenges that varied in nature and were of epic proportions.
A most telling and consequential effect of COVID-19 on the economy was the closing of the border to international travel, essentially isolating the country. Tourism, a significant economic driver of the country, and its spin-off sectors were dealt a blow that had effects which ranged from a total wipeout to significant scaling down of various business operations.
In true cause-and-effect fashion, the ultimate outcome of virtually shutting down the economy was that large numbers of people who enjoyed employment in tourism and the related sectors were now out of gainful employment. Ripples of unemployment shocked the nerves of many Jamaicans as businesses closed their doors or scaled down operations. The gravity of this reality was captured in a report featured by this newspaper in which the Statistical Institute of Jamaica's (Statin) Director General Carol Coy pointed out that, “The July unemployment figure represents a 4.8 percentage point increase when compared to the rate of 7.8 per cent recorded for the same period last year.” This represented a significant and abrupt shift in the economic reality of many ordinary Jamaicans.
Intuitively, there would certainly be tough times ahead for many workers and their dependents. They would, in all practicality, need some financial assistance and fortunately on this occasion the Government was able to implement its COVID-19 Allocation of Resources for Employees (CARE) Programme.
The SET and BEST cash stimulus
Consistent with the Keynesian economic theory of having money injected into the economy by the Government, over the short run, when there is an adverse economic shock to the economy, the Business Employee Support and Transfer of Cash (BEST Cash) and the Supporting Employees with Transfer of Cash (SET Cash) stimulus packages have done exactly that.
This financial apparatus was designed to get money in the hands of the individuals who were now at the mercy of COVID-19 and the attendant economic challenges. As such, it would allow recipients the opportunity to access monies that could be used to purchase necessary consumer items and help in paying utility bills, among other things.
The SET and BEST cash economic stimulus, therefore, has played an instrumental role in furthering consumer spending in the economy. This has positively impacted the pulse of the economy in serving to cushion the negative effects from the fall-off in tourism and the laying off of employees by facilitating consumerism through the State's direct financial assistance.
As such, in the short run, the economy would have weathered the ravages presented by COVID-19 more favourable than if the Government was not able to offer such economic assistance to the thousands of individuals and households that benefited. Equally, many people were able to stave off acute challenges and untold inconveniences by being provided such a financial lifeline.
It therefore can be concluded that, as a prelude to implementing the Keynesian Economic Model, there ought to be sound fiscal management. However, this approach serves an important purpose in times of economic slumps, to not only maintain economic vibrancy, but to also assist citizens when they might be at a most vulnerable stage and need such stimulus to help in preserving their livelihood and dignity.
Trixton Lamey is an educator and thinker. Send comments to the Jamaica Observer or email@example.com.