COVID-19 has changed traditional economics

In 2020, when the pandemic hit and the world's economies shut down, policymakers didn't hesitate to shorten the economic cycle. Particular In the U.S., blistering public spending has pulled the economy out of the swamp of its worst recession in history—faster than everyone expectation and brought it back to prosperity. The result could be a fundamental shift in economic theory and practice.

When the pandemic came, the world put traditional economics aside. In the new economics, fiscal policy replaces monetary policy. The government sent cash directly to households and businesses and make budget deficit a new record. The central bank has played a secondary, supportive role — buying ballooning government debt and other assets, keeping borrowing costs low, and insisting is not the time to worry about inflation. 

The new economics under the pandemic has also protected the financial system, but it is from bottom-up rather than from top-down, which is a point repeatedly emphasized by U.S. Treasury officials. In the spring of 2020, unemployed Americans could not afford to pay their living expenses, rent and home mortgages. A health crisis that has already sparked a jobs crisis will turn into a financial crisis if the government does not try to make up for lost.