Debt Expansion as Relief and Rescue at the Time of the Covid-19 Pandemic: Insights from the Legal Theory of Finance

In Section II, we discuss the relief and rescue policies in the US, UK, and EU and show how they have been advanced by legal elasticity in suspensions from normal private and regulatory law. Crucially, such legal elasticity is intended to facilitate an increased debt burden for corporations and households as a means of relief and rescue. We argue that this policy choice, which is startlingly similar in these developed jurisdictions, has been influenced by the contexts of financialization in these jurisdictions and the perception of temporary duration by policy makers. However, there is a need to critically interrogate the impact of debt expansion as a means of relief and rescue. Section III explores the impact of debt expansion on corporations and households and argues that the legal and regulatory framing of debt has been substantially distorted by the measures discussed in Section II, contributing to increased corporate and household fragility in the long term. The likely temporary effect of debt expansion is overstated, and the consequences of the trade-off with micro- and macro-financial resilience and stability would be highly mixed but significant. This does not mean that substantive policy agendas such as relief and rescue are sub-optimal. However, there is a longer term need for the continuous adjustment of law and regulation to address adverse consequences for households, corporations, and the financial system as a whole. We argue in Section IV that the theoretical insights from legal elasticity suggest that more lasting and continuing applications of elasticity could be needed to fully address adverse impacts from firstround applications. Our arguments also intend to enrich the theoretical understanding of legal elasticity and can thus contribute to future policy applications. In Section V, we apply our theoretical insights to construct a methodological framework for mapping long-term policy and reform considerations, in order to address the adverse consequences of corporate and household fragility, as well as risks to the financial system as a whole. In so d0ing, we offer a blueprint for substantive policy choices, without being unduly prescriptive. The theoretical insights of legal elasticity provide us with a platform to consider more broadly and holistically the problems of overindebtedness in the corporate and household sectors in developed jurisdictions, heightened and sharpened during the Covid-19 pandemic. It is time for policy makers to reflect on the structural implications of addressing these problems. Section VI concludes