There is an erstwhile, familiar, right-wing canard that ‘you can’t solve a problem by throwing money at it’. Well, that particular piece of wisdom is now going to have to be reversed because you can’t solve the Coronavirus depression that is now coming down the pipe by throwing money at it. No matter how huge.
And the sums are huge. Over $600 billion in Germany, £330
billion (in loans!) in Britain, €300 in France, $700 billion in Quantitative
Easing in the US.
But according to James Meadway, former chief economist of the New Economics Foundation and ex-Labour party adviser it won’t be enough:
Thing is: there is no, as in none, as in it doesn’t exist, amount of money at a macro level that can solve this economic crisis. We need to reorientate how stuff is produced: pouring money into markets that are getting to the point of being unable to function will not work.— James Meadway (@meadwaj) March 18, 2020
The problem is not simply that pubs and restaurants fold as
their customer base vanishes as people stop going out. There will be an
unavoidable knock on effect on their suppliers and their suppliers and so on.
Unemployment will starting rising. Household debt – estimated at £119 billion
– is huge and if people’s income collapses in the context of a paucity of savings,
there will inevitably be mass default on debts. This will damage, perhaps
fatally, credit card companies and banks. But that is not all. Corporate debt,
after years of low interest rates, is enormous in Britain
and globally. If business bankruptcies happen, defaults on that debt are inevitable.
In the words of labour economist, Guy
Standing:
These indicators may not mean much
to most non-economist readers. But they indicate incredible economic fragility, especially as private and corporate
indebtedness are characteristic of every national economy.
According to one estimate, UK
GDP will drop by 15% in the second quarter of this year – compared to, for
example, 4.1% in 2009, at the height of the last recession. A French economist,
Pierre-Olivier Gourinchas, has suggested that coronavirus containment measures
reduce economic activity by 50% and 25% for the month after that. “We are about
to witness a downturn that could dwarf the Great Recession,” he
says.
It’s possible that the virus will recede in the spring, allowing
containment measures – social distancing and not going out – to be lifted and
the economy to resume, if not unscathed, at least in recognisable shape. Possible but unlikely. ‘Suppression’ as it is
called, is posited to go on for 18 months,
punctuated by month-long pauses, the earliest in July. This is necessary to
allow a vaccine to be safely produced.
I don’t believe it is possible to ‘mothball’ an economy for
a year and a half, possibly longer, no matter how many bazookas in your armoury
are fired. There will have to be, in Meadway’s words, a reorientation of “how
stuff is produced”.
One immediately necessary reorientation is the introduction
of unconditional basic income for all
those who need it – the newly unemployed, poor, self-employed or anyone showing
symptoms – for example. This would enable them not to go to work if they were
ill, maintain some level of demand in the economy and limit defaults.
But the task of the Left is not merely to insist on its
introduction – other people, including the DUP, are calling for it and Johnson
is ‘considering’ it – but to ensure it is not temporary. That we never go back
to the DWP
dystopia of mass sanctioning and the imposition of destitution as a matter
of government policy.
