I write this, not knowing the answer. One view is that as the pandemic quietens, the economy will spring back into life – not, perhaps, the ‘V’ shaped recovery that the Bank was hoping for last summer, but at least a climb out of the canyon. Another possibility is that those people who’ve been saving during the lockdowns will have pent-up demand to release as soon as the opportunity arises, and that this will translate into inflationary pressure, for example in housing. In either of those scenarios, we don’t actually need to inject resources into the economy.
On the other hand, there are some disquieting economic trends. The pandemic has already closed some businesses, and there will be more. The continuing lockdown in other countries will reduce demand in Britain further. Brexit means that some existing trades selling to Europe (and some to Northern Ireland) will not be viable – for example, small shipments of agricultural produce have become prohibitively expensive and tied up in bureaucracy. And people have incurred debt, serious deprivation and in some cases destitution.
The case for a stimulus package, of the sort that Biden is introducing in the USA, is that it is only by increasing demand that the economy will get moving again. But the British economy is not like the US; it’s much less self-contained, much more dependent on trade, services and complex international supply chains. I can’t tell, then, whether a major increase in expenditure is actually justified.
However, there is another option. The position of the people who have suffered most can and should be protected; that implies redistribution and transfer payments, which are the other side of the Biden plan. If we take resources from people who have been able to save and move the same resources to those who have little, that would probably have a marginal stimulus effect, without running any serious risk either of overheating the economy or of inflation. It’s possible that some sectors would suffer ill-effects, but as great as my respect is for the people running foodbanks, I could stand to see them being put out of business.