One of the ironies of the past few months, for me at least, has been the way most western governments have – after two generations of hands-off, market-driven neo-liberal indifference at the plight of the people – suddenly ‘switched on’ old-style Keynesian support systems. The fiscal faucets have opened, and money is pouring into the economies of nations that, one after another, have been forced to lock down their populations against the pandemic.
I confess that after two generations of neo-liberalism, I am cynical about the motives. It is just possible that governments around the world have genuine care for the people in their policy-making. I can think of one that does. But for the rest – well, I doubt it. I suspect the main reason why one government after another has been forced to engage in support packages despite still, for the most part, having an ideological foundation in hands-off neo-liberalism, is that failure to support the people will, ultimately, also damage the big businesses to which most governments pander.
In a sense, this sudden burst of government largesse – ‘crisis capitalism’ – is explicable in those terms. Fiscal spending can, to some extent, ward off economic downturns and keep corporates profitable, by supporting economic activity among the population.
The question is whether a ‘let’s fix this and get back to business as usual’ approach is actually the way ahead? Two generations of neo-liberalism haven’t produced wealth and prosperity for all. It has served, instead, to enrich a very few, to fuel the growth of mega-corporates, and to disempower those without money. It has also promoted a culture of consumption, driven by the concept of limitless expansion, that seems out of place on a planet with clearly limited resources. Nor is it the ‘level playing’ field imagined. An unbridled ‘market’ – meaning the net sum of many individual behavours – reflects human nature in specific ways and, as we have seen of late, can too easily become unbalanced. This has happened before, of course, when capitalism in its current form first emerged from the late eighteenth century. There are reasons why the nineteenth century was called the ‘age of revolution’, and why twentieth century regulations existed.
Of course none of these issues have been produced by the Covid-19 crisis: the issue with neo-liberalism being an unsustainable approach that has apparently reached the end-point has been around for years – ever since the General Financial Crisis (GFC) showed up the hollowness of the concept. Much of the prosperity of recent years has rested not on real productivity, but on systems that emerged with the lifting of regulation, which allowed unbridled lending. The money created by these loans, which are made to people who (usually) can’t pay them back, was used to buy fixed assets such as houses – on mortgage – along with consumer products, and so found its way into the pockets of the large corporates and their shareholders.
Such an edifice is, of course, a house of cards. It’s already collapsed once, during the GFC. Now it risks collapsing again if anything disrupts the cash-flows on which it rests. And, of course, the virus lock-downs are that disruptor. Big time. An analysis I saw by Goldman Sachs indicated that the US economy might suffer a 24 percent decline in GDP during the second quarter of 2020 alone – noting that there are some months’ lag in the system.
Giving that a bit of historical perspective, remember the Great Depression of the 1930s – the economic bogey-man that was remembered by two generations as a horror time of poverty, hunger and hopelessness? In the US, it began with an 8.5 percent decline in US GDP across fiscal year 1930. That was enough And it’s around a third of what is now forecast for second-quarter 2020 alone. The New Zealand case, which I looked into for a historical paper on the Great Depression that I wrote back in 2009, showed similar figures.
Now, to be fair, this the lock-down hit is what’s known as an exogenous shock – that is, something outside the economy. It is going to be relatively transient. Whereas the Great Depression of the 1930s was a structural outcome of longer-term trends at that time. I won’t explain that here – I did in that economic history paper, go check it out – click here for the PDF.
Nonetheless, the lock-downs are still an economic sucker-punch against economies that float on complex and gossamer-fragile skeins of debt, conceptual ‘money products’, and belief in value by ‘market traders’ whose actual behaviour is similar to that of reef fish, starting at shadows. The edifice is largely supported by cash-flows from the employed. Now, I’ve seen arguments suggesting that the cost of a shut-down isn’t worth the damage the loss of cash flows would do. In Britain, early arguments proposed letting the disease rip; and Sweden has gambled that their society can apply proper self-discipline and contain the pandemic without locking down. However, to me all this is specious. We’ve become too accustomed to reducing human life to monetary terms, which has been one of the cornerstones of the extreme neo-liberal corner into which the world has currently backed itself.
Actually, what financial price can you really put on human life and well-being? This is something that transcends money, that transcends profit-margins, that transcends stock prices. A lock-down will save lives. The end. That makes it a no-brainer. Furthermore, the counter-factual modelling that I’ve seen suggests that an uncontrolled pandemic outbreak would actually cause more – and longer-lasting – damage to an economy than a preventative lockdown.
The issue is what next? Back in the fourteenth century, the Black Death provoked a major socio-economic system-change across Europe. Old-style feudalism, basically, ended on the back of it because the loss of population (about a third) gave the surviving peasantry increased negotiating power. Covid-19 won’t provoke such a death toll, but of course the modern economy is far more fragile. So what will happen now when the lock-downs end, when the pandemic subsides, and when people start looking to the future? As I see it, there are three ways ahead:
- Allow Atlas to shrug. Let the Second Great Depression happen without taking any action and carry on with neo-liberal globalism. Let the rich continue siphoning money off a poor who are now utterly impoverished, hungry and devastated.
- Engage in a mix-and-match outcome in which governments pour money back into their economies (which, arguably, might provoke fixed-asset inflation, such as housing), but retain neo-liberal systems otherwise.
- Take the opportunity to pause, think, and develop a balanced form of capitalism that moves well clear of neo-liberal excesses; that supports those whose misfortune is no fault of their own; that is long-term sustainable; that has enough controls in place to curb extremes; and which also nurtures and rewards enterprise and individual effort.
Now, it seems to me that (1) would provoke uprisings; while (2) is where various governments around the world have already gone, including by effectively nationalising the bond markets (ie: by having central banks buy up the debts raised to provide the support money). Some governments have been leaning towards (3), but haven’t been able to lean far because, after two generations, extreme neo-liberalism has gained a significant voice.
Will any of this happen? Will other options be pursued? I don’t know. Humanity stands at the crossroads – this is obvious. And I hope that governments around the world show themselves able to make useful choices. Ultimately, economies are not about money; they are all about people.
Copyright © Matthew Wright 2020