Thursday, 19 March 2020

The bazookas won't be enough

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:

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.