The limits of fiscal policy - how much is too much?

Biden’s bold fiscal stimulus proposal has sparked a wider debate in the investment community about the limits of fiscal policy. Should we worry about governments running large deficits and building up huge debt loads? Or are the costs of doing too little greater than doing too much?

In this episode, our host Paul Diggle is joined by fellow economists from the Aberdeen Standard Investments Research Institute, James McCann and Luke Bartholomew. Together they discuss the role of fiscal policy in the pandemic recovery, and whether economies risk having ‘too much of a good thing’.

Part 1 addresses why a country is not like a household in its debt carrying capacity, what that means for austerity versus fiscal stimulus, and whether debt-to-GDP limits are much larger than people think.

Part 2 turns our attention to the current debate over the size of fiscal stimulus in the US, the role of fiscal policy when central banks are so constrained, and what such huge stimulus measures mean for the inflation outlook.