Government Purchasing During COVID-19 and Recessions : How Expansionary Legal Policies Can Stimulate the Economy

The traditional approaches to “cure” economic recessions are monetary and fiscal policies. Most economic crises are first addressed with monetary instruments, as the Federal Reserve’s extensive corporate bond purchasing program of March 24, 2020, has shown. However, when interest rates are zero or close to zero—referred to as the zero-lower bound—and the economic downturn is expected to be significant, governments often launch additional fiscal stimulus programs, such as the U.S. COVID-19 Stimulus Package in the amount of $2.2 trillion passed by Congress on March 27, 2020. But monetary and fiscal policies are not the only means of influencing an economy’s business cycle. A third and novel option is expansionary legal policies, also referred to as countercyclical regulation, which is the focus of this article.Legal instruments have been used only to a limited degree to stimulate the economy. One of the first advocates of law and macroeconomics was Yair Listokin who promotes the use of legal policies and lawyers in macroeconomic policy. In this article, the author explains and applies the idea of expansionary legal policies to the field of public procurement law. Public procurement lends itself particularly well to expansionary legal policies for two reasons. First, public contracts form a large part of the government’s expenditure side, amounting to fifteen to twenty percent of global GDP, and can therefore be used to expand the money supply. Second, government contracting is governed by a set of complex administrative rules that can be adjusted to better reflect the business cycles. This article will discuss the idea, design, application, and potential effects of expansionary legal policies by means of two procurement policies that were adopted in the United States and Switzerland in response to COVID-19 this March and compare them to Germany’s relaxation of procurement rules after the financial crisis in 2009. To protect taxpayers’ money and mitigate the risk of corruption, this article suggests legal safeguards for expansionary procurement policies. With the necessary measures in place, expansionary procurement policies will help procurement regulations to reflect economic realities more accurately and stimulate the economy by increasing and expediting spending through public projects in infrastructure, healthcare, and other sectors