Dispute of the Bernanke-Blanchard macroeconomic model for the COVID-19 crisis: Austrian Economics insights

Abstract

This is a heterodox review of mainstream Macroeconomics, given its preference for more predictive than realistic models, which have lost credibility in the face of crises. Attention is focused on the recent Bernanke-Blanchard macroeconomic model used to manage the COVID-19 crisis and beyond. This review examines its theoretical foundations and applies them to the Eurozone area, with a special focus on the Spanish case. For this critical-hermeneutic and historical-comparative analysis, this study draws on the theoretical and methodological frameworks of Austrian Economics and Neo-Institutional Economics (both schools observe the principles of realism and the non-neutrality of money). The results reveal the weakness of the model as it does not take into consideration the management of previous crises, such as the Great Recession and its problem of credit expansion without real savings, further intensified by the non-conventional measures of the central bank; currently, the scenario is worsening in terms of expansive fiscal policies. There is a corollary to the macroeconomic crisis, due to the lack of common foundations and excessive casuistry.