Just at the moment governments are spending money as if there were no tomorrow for the very good reason that there will indeed be no tomorrow for a lot of people if they don’t act quickly. The urgent need to act means that whatever it takes to fund health care, social care, and public services has to be found. It is also not possible to ask people to stay at home and then expect them to manage without an income. So, across the world funding has been pumped into benefit systems and special crisis payments. In Spain they are now starting to do this simply, directly and fairly with a Citizen’s Income. In the UK millions of people are battling with the complexities of overloaded Universal Credit phonelines, trying to reclaim tax or struggling to get a bank to extend their credit. Those individuals aren’t the only ones in trouble. Consequently, huge payments are also going out from the government to help businesses survive. All of that adds trillions of dollars to the debt load that almost every single country in the world took on in 2008 to help banks survive.
Conventional economics tells us that as soon as we are out of the immediate crisis the pressure on government finances must cause huge problems. It is expected, for example, that the UK national debt will increase to exceed what the country earns in an entire year for the first time since the decade after the end of the Second World War. That means most economists think governments are going to have to cut back on expenditure whilst increasing taxes for at least a decade to get their finances back under reasonable control.
Try and visualise that and it quickly becomes evident that the experience simply won’t be tolerable. After ten years of painful cuts, we are going to emerge from a health crisis and expect public spending to undergo another ten years of much sharper cuts. Governments could be asking hospital doctors and nurses and care workers to take pay cuts and increased workloads as a reward for getting us through this pandemic. If that isn’t acceptable then they could turn on the teachers, or the police, or pensioners.
Before we passively accept that level of pain, we need to do some hard thinking about whether it is necessary and what the alternatives are. Fortunately, there are very workable ways out of this. The bad news is that they require Keynsian economics that is deeply unfamiliar and troubling to current policy makers. Put more simply the best solutions are ideologically difficult for governments but they have no good alternatives.
The quickest and simplest way of financing ourselves out of this crisis is to print money. In a time of inflationary pressures that is a really stupid thing to do. But we are not going to come out of this at a time of any serious inflationary pressures. All the dangers are in exactly the opposite direction. If we are going to avoid something worse than a second Great Depression it is going to need governments to pump a great deal of money into the system. After the 2008 financial crisis the Bank of England effectively printed over £400 billion and inflation went down. Their Quantitative Easing programme saved the banking system. Now it is the only realistic way of saving government finances. If a co-ordinated move is made by central banks in several different countries to do this at the same time there will be very little risk of it triggering balance of payments or currency value problems. Yet it is a solution that clashes strongly with political ideologies. We could easily find ourselves facing years of misery and risk entering a genuine economic depression because currently fashionable economic theory doesn’t feel comfortable with the most realistic policy option.
The second practical way of financing a recovery without a depression is to impose serious taxation on the very richest people and to increase benefits or reduce taxation for the poorest. The rich spend a much smaller proportion of their money than the middle classes or the poor. Cafés, restaurants, kitchen fitters and plumbers get the vast majority of their income from people on middle incomes or lower incomes. Letting tax dodgers launder money through tax havens doesn’t cause a trickle down to the poor. It acts as a drag on the economy. Taxing them heavily and enforcing those taxes and then providing that money to people in need boosts the economy. This was standard economic theory for three decades after the Second World War. Doing it now would rescue thousands of businesses that will otherwise go under. Yet Ideology will once again stand in the way of practical actions that have been proven to work.
Then there is a third option. A set of policies called a Green New Deal which seeks a planned reduction in consumption of resources and a planned increase in investment in sustainable economic activities. In the last few weeks, we’ve all experienced the joys of no air pollution, no car noise, no airplane trails in the sky and communities working to help each other instead of individuals encouraged to compete. There is a serious opportunity to continue those positives and to use this crisis to restructure the economy and update it to cope with the post fossil fuel era. That won’t happen if we spiral into a destructive economic depression where governments are desperate for every penny of finance and business after business lays off staff. The Green New Deal needs to genuinely echo the original New Deal. A thoughtful plan as to how to use a crisis to put people and businesses back to work whilst changing the way the economy works for the benefit of all. And by all, I mean all species. We got into this crisis as a result of over exploiting the environment and allowing wild animals to be treated as something to exploit so that rare creatures mixed together in wet food markets in China and exchanged viruses. The sensible way out of it is to prioritise the environment and build genuinely sustainable economies.
That means thinking very carefully about which businesses we support and which we don’t. There is going to be a massive reduction in air travel after this crisis. Why use public money to prop up an airline if there needs to be many fewer of them? Nor will it make great sense to subsidise fossil fuel companies to survive the low oil prices that have been produced by this crisis. Their product was already living on borrowed time and consuming the future. If low prices knock US fracking companies out of business then it would be criminal short sightedness to do anything but cheer. Yet if whole sectors of the economy are not likely to ever recover their previous size and strength after this crisis others will need to make up the slack. It is not easy to build a better society amongst the ashes of a Great Depression. Governments are therefore going to have to redouble efforts to invest in health science, clean energy, sustainable agriculture and small businesses. As much finance has to be pumped into the business economy as is being destroyed.
That destruction is not the product of bad luck. The virus didn’t just fall from the skies by chance. We have been exposing ourselves to increased risk of transmission by cutting down forests and by poaching wildlife on huge scales. We have increased that risk by relying on single use plastic products and just in time over complex supply chains for essentials like personal and protective equipment. How much simpler and more effective for a hospital to rely on high quality specialist clothing that can be cleaned and reused rather than on disposing of hundreds of thousands of flimsy plastic garments that are worn once and thrown away? How much better for food to come in season from local suppliers than to depend on being flown in at risk of the supply chain collapsing in hours?
For decades environmentalists have been telling us that our economic practices are unsustainable and urgently need to change. If we are genuinely interested in following the science then the time has come for economists and governments to listen to the warnings. We can’t sustain an economy on burning fossils. We have to act now to stop disaster happening to our climate. We can’t carry on covering the planet with plastic without any thought for the consequences. We’ve had one very unpleasant reminder of the costs that are encountered in human lives and in people’s livelihoods as a direct result of treating wildlife badly. It is way past time we gave a lot more thought to how to restructure our economy and our society in order to avoid a much worse disaster. Let’s have a Green New Deal not another decade of the far right telling us it is necessary to tighten our belts whilst they try and continue with business as normal.