The Nordic Way to Economic Rescue

In Denmark in 2018, the government collected tax revenue equal to 49 percent of the nation’s annual economic output, according to the Organization for Economic Cooperation and Development. In the Netherlands, that figure was 39 percent, and in Britain 34 percent.

In the United States, tax revenues amounted to 24 percent of annual economic output. That was down from 28 percent in 2000, before huge tax cuts from the George W. Bush and Trump administrations, with most of the benefits flowing to the wealthiest households.

The emergency threatening the global economy has reached such a magnitude that it demands a radical departure from the traditional policy playbook, assert many economists.

Nearly 3.3 million Americans filed for unemployment benefits last week — the worst week on record by far — and uglier numbers are likely ahead. With the United States now the epicenter of the pandemic, and with the economy in virtual lockdown, the downturn could exceed the pain of the Great Recession a dozen years ago.

In that episode, the Obama administration deployed a traditional dose of stimulus. A steep drop in housing prices deprived homeowners of the credit that had been financing robust spending. The government had to step in and build roads and schools, the logic went, creating construction jobs. The newly employed would return to local shops and restaurants, whose workers would gain money to spend — a virtuous cycle.

But in this crisis, stimulating the economy is akin to throwing a sale inside a department store that has been emptied by the bomb squad. People are not avoiding malls because they lack money. They are being told to stay away for reasons of public health.

“This is not about stimulus,” said Heidi Shierholz, senior economist and director of policy at the Economy Policy Institute, a labor-oriented research institution in Washington. “We don’t want to get people back to work right now. You’re making sure people are OK while you’re on lockdown.”

Article source: https://www.nytimes.com/2020/03/28/business/nordic-way-economic-rescue-virus.html