I agree with @ummodern that this is a great piece by @csissoko I also agree with his point about systemic interdependencies. Let me take a stab at expanding on that idea. @warwickecon @RebuildMacro 1/ https://twitter.com/ummodern/status/1249327894700195846

I agree that individual corporations must be allowed to fail and that shareholders of those corporations should, under some circumstances, be wiped out. But in an interconnected network of contracts, the failure of one company ripples through the system ... 2/

... and causes bankruptcies in other parts of the system. There is a danger that these network effects will destroy the purchasing power of households and lead to an amplified fall in consumption that triggers layoffs in all sectors of the economy. 3/

These network effects cannot be insured through the mechanisms of limited liability and state finance that you describe so elegantly in your piece. They require fiscal actions by the state. This is the insight introduced by Keynes in the GT. 4/

In my work https://www.amazon.com/dp/0190621435/ref=nodl_?tag=duckduckgo-ipad-20&linkCode=osi&th=1&psc=1 I argue that the right way to prevent cascading series of network effects is by managing the price of an index fund in the stock market. I favor this proposal, as opposed to traditional fiscal policies, because evidence suggests that ... 5/

... consumption, at low frequencies, responds to wealth rather than income. So how can I favor the support of equity prices, while simultaneously agreeing with you that the state should allow corporate bankruptcy? The answer is that support of a value weighted ETF allows ... 6/

... price discovery by the private sector to adjust the relative prices of companies within the ETF. Individual corporations can, and should, be allowed to go bankrupt. We should not allow the entire economy to fail. 7/

That leaves one remaining issue? Surely, a big supply shock, like Covid19, is the kind of event that limited liability was designed to absorb. Yes: but the danger is that a feedback effect, operating through networks of interlocking contracts ... 8/

... will magnify the original shock and turn it into a major and persistent depression. 9/9