You may have noticed we’re in the middle of a global pandemic which is not only causing hundreds of thousands to die, but is also affecting people’s livelihoods, their ability to pay rent and is threatening to bring down the whole world economy. Though our first thoughts must obviously be with preventing the spread of the virus, we should also be looking ahead to a potentially more serious crisis on the horizon.
As Jerome Roos writes, due to the mass shutdown of commercial activity and already record levels of debt within the system, Coronavirus “risks unleashing a major international debt crisis that will make the market crash and global recession of 2008–’09 look like child’s play”. Roos suggests the perfect storm of incredible levels of “surging global debt levels” and “sharp economic contraction”, is likely to pose an “existential threat” to the “debt-based financialised world economy”. This is certainly going to provide a massive challenge to states around the globe whenever this public health crisis eventually ends.
Broadly speaking, there are two main theories of how to alleviate a financial crisis. These methods have been tried out by governments in different historical settings so we do have a bit of evidence from which to base our future choices on.
On the one hand we can look at the decisions made by the UK Government in response to the 2008 Financial crash. After the New Labour government had bailed out the banks to the tune of $141bn, Cameron and Osborne instituted an austerity regime with deregulation and drastic cuts to public sector wages and welfare services (whilst also reducing taxes on the rich and corporations). These policies had the stated aim of reducing the deficit and providing a balanced budget.
The effects of such policies were severe. Austerity has caused a huge rise in food banks, homelessness, child poverty and low wage, zero-hours jobs, as well as being responsible for a mind-boggling 130,000 ‘preventable deaths’. The Tories claimed at the time that, despite the horrific effects, these were necessary measures that would help to save the economy and bring down the debt levels. However, even without noting that these clearly damaging policies failed on their own terms (the budget has not been balanced and austerity has cost the state over £100bn in terms of economic growth), there was always another way.
This ‘other way’ was practiced following the Wall Street Crash and Great Depression in the 1930’s. This period was marked by a ‘vicious cycle’ where “aggregate demand dropped a lot. People stopped buying things leading companies to reduce production and stop hiring, which in turn reduced how much people could buy”. Instead of simply reducing government spending and putting the cost of the crisis on the backs of the people least responsible for initiating the crisis, politicians such as President F.D. Roosevelt followed a more Keynesian approach to economic policy.
In general terms, Keynesian economics favours mass public spending as a method of stimulating the economy, creating jobs and demand in the process. This was pursued throughout the ‘New Deal’ period where organisations were created which put people to work on various infrastructure projects which massively reduced unemployment and expanded the economy.
So the UK Government has a decision to make. The Tories, ideologically opposed to mass public spending programmes, could choose to once again punish the vulnerable during the upcoming economic crisis. They could continue their pattern of blaming the public for ‘flouting the rules’ and argue that there is no other option but to, once again, cut public services and wages for our heroic key workers in public sector roles. Such a plan would, I believe, ring incredibly hollow in this Coronavirus era.
We have already witnessed the Government finding their ‘magic money tree’ in managing to pay 80% of salaries to furloughed workers, the self-employed and in funding the deferral of VAT payments. Clearly, it is possible for the state to spend money when it needs to. This is made even easier by the record low interest rates on Government bonds which effectively allow states (who control their currency) to print as much money as they like to invest and stimulate economic growth.
Therefore, there is actually the potential for this current economic crisis to lead to some genuinely positive changes in the way our economy is set up for the future. As Brett writes: “a new de-financialised structure of incentives can emerge to meet social, economic and environmental needs”.
“Following in the footsteps of FDR, we can stimulate the economy by creating millions of well-paid jobs in the new Green Technology sector which is sadly lacking in the UK.”
We can renationalise public services that are vital both inside and out of a global pandemic (this can include airlines so badly in need of a government bailout that the state has incredible leverage to attach public ownership and strict environmental standards). We can actually plan our economy– getting us away from the ‘just in time’ model which has left us so badly under-resourced during Coronavirus, enabling us to more fairly allocate resources amongst the public. We can implement a Universal Basic Income which would allow no one to fall victim to such a crisis again, as well as helping us transition to a future of AI and automation. And, most importantly, we can prepare for the impending Climate disaster by launching a ‘Green New Deal’. Following in the footsteps of FDR, we can stimulate the economy by creating millions of well-paid jobs in the new Green Technology sector which is sadly lacking in the UK.
Obviously, all these things are not going to happen by themselves. For a Conservative Government to take such measures would require an unprecedented level of public pressure in order to force their hand. But we have already seen that our narcissistic (but thankfully healthy) PM is somewhat responsive to public demands. As such, in addition to trying to improve conditions for NHS Staff, prevent more deaths from Covid-19, our efforts should turn to the future facing us after Coronavirus. After all, Cameron and Osborne have given us their “template for how not to respond to a crisis”. Let’s make this time better.
By Glyn Sheldon