Happy May to you all, at least I think it’s May, it must be by now I guess. It’s a rare day on planet Earth when virtually everyone is doing the same thing at the same time. At the time of writing, I’m locked into my house, I have been for weeks, and I’m wondering what happens when we are released back into the wild and can get on with the herculean task of rebuilding the world, or at least my little bit of it. We are all in the same boat, some of us literally.
By the time you get to read this, you might well have been released, I hope so, and I hope you made it out healthy, a good many didn’t, so count yourself lucky.
Now we have emerged into the daylight what awaits us?.
Economic chaos in the shape of the deepest recession since the 30’s, or so they say. A stalled global economy in need of a hard reboot, and the rulebook of economics torn up, at least for now. The lines of the unemployed have been swelled by tens of millions, many businesses have closed, some temporarily, many permanently. Those that have survived face difficult financial futures as they downsize on concerns that their customers pockets are empty. It sounds gloomy, because it is sadly, but we have to pick ourselves up, dust ourselves off and start again, whatever we find.
So what do we do?
Unlike the rebuild after the second world war, the physical infrastructure is still there and undamaged. The trains and factories, roads and cities are intact. It’s like an engine that has run out of fuel. It’s not running, but pour some fuel in, and kick it over and it will splutter into life and be ticking over nicely before too long, hopefully. Please excuse the elementary school economics lesson here, but we work, earn and spend. Our expenditure is someone else’s wages so they can work and earn and spend, and so it goes. It is the initial impetus, it’s how we fuel the tank and kick it over that is the most immediate need.
Governments the world over have promised aid packages in the billions and trillions, from low interest loans to businesses, to the government directly paying workers from the government coffers to stop companies, and people, from going bust, but by their own admissions they can’t save everyone, or every firm. The US government is sending a cheque, signed by the President himself, to almost all adults in the country in an attempt to put fuel back in the tank. In Italy there has been talk of giving every Italian a 600 euro voucher to spend towards a holiday to kick start their vital tourist industry.
The much talked about utopian dream, for some, the universal basic income has also been spoken of. This is a wage, a permanent wage, to every adult regardless of need or productivity. It has been touted many times, over many years. We have mentioned it in this column as a way of sharing the prosperity for the coming age where automation and artificial intelligence continue their takeover of people’s jobs, but now might just be the perfect opportunity to give it a shot. Unprecedented times call for unprecedented measures.
Whichever solutions find favour, it’s going to cost eye wateringly huge numbers, and it’s mostly going to come from borrowing and printing money. It’s vital that however you choose to refuel the economy, that money gets spent. The instinct of many people coming off the back of a few months of economic disaster and looking into an uncertain future to save anything they earn. That’s not going to help anyone, one man’s expenditure is another man’s income as they say, so expect interest rates to stay rock bottom for the long term, and any handouts to come with heavy caveats to make sure it gets spent and circulated.
Naturally all of this borrowed money is going to have to be repaid. We’ve been here before of course, and not too long ago, and we need to do it much better this time around.
The post Covid-19 recession seems likely to dwarf the financial crash of 2008.
In the decade of recovery that followed the first-choice-fix of most countries seemed logical, we all know the lesson, if you want to pay off your debt you have to spend less than you earn. The legacy of these policies was a lost generation swallowed up by systemic unemployment, austerity that slowed growth and robbed opportunities from the poorest in our society. They say that Covid 19 is a great leveller, that anyone from kings to paupers can get it, but it has the capacity to divide. White collar workers are the ones more likely to continue to work from home, and get paid during the lockdown, the blue collar workers, the small businesses and the self employed trades are not.
As the equality of income and opportunity diverged during the austerity decade, it fueled nationalist policies and a move to the right. It drove anti immigration policies, thinking and xenophobia. Trump, Brexit, and the rise of hard right politicians across the world are direct results, whether you agree with them or not. The recession of the 1930’s fueled the rise in facism and national socialism, and unless we make sure that the inevitable economic pain is distributed equally, and the inevitable opportunities that will show themselves as we regrow the economy in these challenging new times are also shared, we will suffer these afresh. As a famous Spaniard once said. “Those who fail to learn from the mistakes of their predecessors are destined to repeat them.”
Stay healthy, in mind and body, and best of luck!
By Phill McCoffers