The New Daily asked me to write a bit on the question “What should/will the post-coronavirus economy look like?
Here’s what I sent
The Covid crisis has demonstrated the inadequacy of crucial aspects of our social and economic system, particularly relating to employment and unemployment. Before the resurgence of neoliberalism in the 1970s, Australian governments accepted responsibility for maintaining full employment, and provided support for all those unable to engage in paid work, whether through age, disability or unemployment on an equal basis. The full employment goal was not always achieved, but it remained central to public policy.
Over the period since the 1970s, government has passed the responsibility for economic management to the Reserve Bank and required a primary focus on low inflation. The treatment of benefit recipients, except the old, has been steadily less generous and more punitive. Meanwhile governments have focused obsessively on largely meaningless measures of budget balance.
The failures of this approach have been evident for years, but it has taken the Covid crisis to lead to any change. Within a matter of weeks, dogmas that have been in place for decades have been abandoned.
The most important requirement for the post-coronavirus is that we should not attempt to return to a pre-crisis ’normality’ that was unsustainable in almost every respect: social, economic and environmental. Rather, the income support measures adopted in response to the crisis should be maintained, and the government should accept the maintenance of full employment as its core economic responsibility.
45 thoughts on “What should the post-coronavirus economy look like?”
John – shouldn’t “The most important requirement for the post-coronavirus is that we should attempt to return to a pre-crisis ’normality’ that was unsustainable in almost every respect: social, economic and environmental.” – read “… that we should not attempt …”?
I think there’s good grounds to split some of the companies that government buys into public service and profit-making arms and run the profitable bit in a more sensible way than just selling them off with a promise to socialise any losses. Sorry, I mean “bails out” or whatever the term du jour becomes.
It would be insane for the government to guarantee the survival of random companies without gaining equity and even complete control of them. Loans at current market rates are little better than donations unless they cannot be escaped through bankruptcy (viz, you’d want to make sure that the people who control those companies are available to Australia law enforcement should that become necessary).
I just came across this rather wonderful line: “… but it is currently the fate of anyone writing about politics to know that their thoughts will be less influential in shaping society than a microbe.”
Short answer, the economy should look very different but it probably won’t under Morrison. We need;
(1) A UBI (Universal Basic Income) system.
(2) A JG (Job Guarantee) system.
(3) Nationalization of all rescued strategic and natural monopoly businesses.
(4) Allow all non-essential CO2 emitting industries to contract or collapse without subsidies. This ranges from coal mining, to tourism, professional sport, horse and car racing and others.
(5) No subsidies of any kind for private businesses and corporations.
(6) Higher taxes for the rich and corporations.
(7) A carbon tax.
(8) Pigouvian taxes for all deleterious non-essential items. Alcohol and tobacco are heavily taxed like this but salt, sugar and fats over a set limit in junk and fast foods foods should also be heavily taxed.
(9) A Commonwealth superannuation, health, property and general scheme for all Australians.
(10) Reduction of the FIRE (Finance , Insurance, Real Estate) sector by regulatory controls.
(11) Increased public spending on health, welfare, education, renewable energy, sustainability and the environment.
(12) Marked reduction of the private health, welfare and education sectors.
Ikonoklast, we are in 100 per cent agreement
Surely the post-coronavirus economy will have enhanced funding for hospitals, especially intensive-care units and better stockpiles of emergency equipment ? (We should be looking at what economic measures are required post bushfires too – like better funded Rural Fire Services and more stringent planning rules for houses).
Oops, I guess that is Ikonoclast’s point 11.
Yeah great. Hopefully will have more to say soon, but in the meantime, good stuff 👍
Iko’s carbon tax (7). Yes! Both Fatih Birol of the IEA and Christine Lagarde of the ECB have called for greater climate ambition, not less. At least some members of the Davos élite are seeing sense on this.
To Ikonoclast’s fine list I would add, (13) End tax exemption for religious organisations.
New point. A return to pre-virus BAU is technically impossible until there’s a good vaccine, sometime in 2021. Until then, the economy will labour under the omnipresent risk of a resurgence, to be met by new quarantines. See figure 4 in Neil Ferguson’s Report 9. (https://www.imperial.ac.uk/mrc-global-infectious-disease-analysis/news–wuhan-coronavirus/) It’s too schematic as it doesn’t allow for policy learning, but is basically still correct.
This is the *best* outcome, in which quarantines prevent infection rising to the herd immunity level. This will depress all sorts of spending and investment decisions. Who’s gong to book a holiday in Thailand knowing that they may be trapped by a sudden quarantine?
The implication is that the socialist virus war economy will remain for a year. Perhaps more like the patchy WWI version of Monnet and Rathenau than WWII, but still massively more statist than the status quo ante.
If we bend the curve down enough to avoid overwhelming the hospital system (and having many more deaths as a result) then progress to herd immunity will take about 6 months to 12 months. That’s my back of the envelope calculation. A vaccine will probably take about 18 months to never possible. That’s the current wisdom of those who know about such matters. Treatment methods will no doubt improve and some medications may be found to help save more lives. This means the lethality could drop, maybe by up to a factor of 10. Who knows at this stage?
Economic repercussions will be felt for years. It will be a “socialist virus war economy” as J.W says. The thing will be to make the socialist shift stick so it can be used to fight the climate change war, the sixth mass extinction war etc.
I would add a further item to Ikonoclast’s 12 point plan…a real reduction in military spending.
The Federal Government’s intention is to return it just as it is post the coronavirus.
Except there will be a huge increase in public debt which it will attempt to pay down by an increase in the GST and vast public sector cuts (pay freezes/cuts, redundancies, reduced service provision etc).
And cheap money will have to continue forever, pumping up property prices.
So the rich will do OK, boomers who own property will do OK and the rest of us will suffer a significant real decline in our standard of living.
This crisis will probably last at least until the next election. Hopefully, Scotty won’t be a factor after that. It’s hard to see how we avoid a massive economic crash like the Great Depression. Typically, socialist or at least Keynesian style welfarist policies have followed major crises. This is the picture Thomas Piketty draws. Inequality increases under capitalist business as usual until internal contradictions or exogenous shocks ensure the wealth destruction of great depressions and great wars. Then, popular demand for a livable existence again becomes the most important force in politics.
It is instructive to note how rapidly money and its finance circuits are exposed by a crisis as a game of musical chairs. When the music stops there are not enough chairs because the fat wealthy man sprawls over several while those without chairs are banished to the reject line. Then the rules of the game of chairs have to be changed otherwise those without chairs begin to pull them from under the chair-hogs. Some can even go further and start smashing chairs over the dethroned chair-hogs’ heads. This rapidly gets out of control. It’s better to change the rules of the game of chairs before the smashing starts. This time we must change the rules completely and permanently.
“Except there will be a huge increase in public debt”
$400 billion here, $400 billion there, and soon you are talking real money.
It’s amazing how PM Scotty and Co. have decided to ditch the mantra of ‘where’s the money coming from’ and embrace ‘big spending’ socialist policies. The economy is likened to an inflatable rubber ball which will ‘bounce back’ once the crisis is over. In other words, it will soon be ‘business as usual’. The COVID 19 pandemic may be portent of the economic and social disruption the world can expect to experience from another global externality out there, called climate change.
THE Question by Ikon.
How do we fix permanently, as Ikon says; ” to make the socialist shift stick” when “the oligarch always wins in transactional exchanges with non-oligarchs.”^1.
And I really do not want to agree with Mankiw here “Yes, r > g. So What?”, but I am inclined to agree with ” the bottom line—his vision of the future and the consequent policy advice—most likely will not.”^2, as “Policymakers have a tricky task ahead of them”.^3.
My question then is, considering we agree with, as JQ states “we should not attempt to return to a pre-crisis ’normality’ that was unsustainable in almost every respect” – IN WHAT ORDER do we achieve Iconoclast’s list?
I believe, if Ikon’s Point 6 was fixed first – “(6) Higher taxes for the rich and corporations” – most of the other points would then be achievable.
^1. “most real-world oligarchs worry much less than the rest of the population about individual transactions; beyond a certain point, many do not even know where their own money is invested. By contrast, they worry deeply about how taxation and re-distribution affect their fortunes, and they expend signiﬁcant effort to lobby against progressive taxation, capital gains taxes and inheritance taxes. ”
Iconoclast’s points falling after taxation fixed to make r g. So What?
By N. Gregory Mankiw*
Click to access yes_r_g_so_what.pdf
^3. “What will the post-coronavirus global economy look like?Policymakers have a tricky task ahead of them
“The problems of the CDC are symptomatic of a broader problem in health care, in which a private sector oligopoly largely predicated on employment and income status, and prioritizing profits over adequate public provision, has proved itself wanting.
“But the biggest takeaway from the crisis is that our societies must be immunized from the sickness of a diseased ideology that has done far more long-term damage to us than the current pandemic.”
And definitely add Strato & Mr C J Keane points;
(13) End tax exemption for religious organisations
(14) a real reduction in military spending.
It seems from last nights 4Corners that in the early stages COVID was containable, treatable and doable. However, the authorities clamped down on any discussion of the disease allowing it to proliferate into a pandemic.
Like Trump (and to a lesser extent Morrison, Boris et al) President Xi relies on popularity for support. Populists need to keep churning out good news stories, hence the clamping down on free speech and the media.
Post COVID we need to see the four principles of good governance ie transparency, accountability, participation and inclusivity. No more trickle down grow the pie claptrap – it needs to be a level playing field.
I was encouraged by deputy CMO Paul Kelly’s recent promise to publish the modelling behind their decisions. All modelling should be made public, it’s in both parties best interests to be open.
I’m with Historyintime. We know no other way.
I fear that after the pandemic is over, the Coalition will launch into a vicious austerity program that will see social services cut to the bone, welfare hacked back to a stump and the consequent immiseration of millions of Australians.
Meanwhile, the right wing media outlets, many of whom actively campaigned against the early strong government action that could have averted the crisis, will wage war on the “undeserving poor” and the “elites”.
Historyintime wrote: “And cheap money will have to continue forever, pumping up property prices.”
The negotiations (and non-negotiations) Slomo has called for between renters and landlords over rent reductions, rent pauses, rent holidays, and rent accruals plus interest, are all over the place. This can’t be good for the usual rent increases maintaining the Ponzi property pricing debt bubble, nor for Australian bankers’ sleep. So when is the RBA/Recessionberg going to lend renters the funds to payout their current and future leases up front?
KT2 wrote: “Any others?”
(n) A jubilee year. Cancellation of debts. But also launching a radically reformed financial system.
Svante – debt Jubilee is an excellent addition.
Read this piece by Steve Keen the other day.
“A Modern Jubilee as a cure to the financial ills of the Coronavirus
“Corporations exposed to Coronavirus-driven losses of revenues should also be able to receive direct aid from Central Banks as well. This could take the form of the sale of newly issues shares in return for cash—it should not be in the form of debt, which would simply replace one problem with another.
Coppola, F. (2019). People’s Quantitative Easing. Cambridge, Polity Press.
I agree with all that except the part about deficits. Deficits are a catastrophe. Full employment ought not mean public sector welfare. Or banking industry welfare. If we get a grip on the high-paid welfare we don’t need to be stingy with the low-paid welfare, or efforts to produce meaningful jobs.
Transparency – or lack of – continues to obscure COVID recovery in China. Their official statistics, which they refer to as evidence of a recovery, are easily challenged.
This game that they play, which denies transparency, freedom of speech and other principles, is ultimately more costly. It serves as a role model for other nations, of what not to do.
From POLITICO online:
The coronavirus pandemic marks the end of our romance with market society and hyper-individualism. We could turn toward authoritarianism. Imagine President Donald Trump trying to suspend the November election. Consider the prospect of a military crackdown. The dystopian scenario is real. But I believe we will go in the other direction. We’re now seeing the market-based models for social organization fail, catastrophically, as self-seeking behavior (from Trump down) makes this crisis so much more dangerous than it needed to be.
When this ends, we will reorient our politics and make substantial new investments in public goods—for health, especially—and public services. I don’t think we will become less communal. Instead, we will be better able to see how our fates are linked. The cheap burger I eat from a restaurant that denies paid sick leave to its cashiers and kitchen staff makes me more vulnerable to illness, as does the neighbor who refuses to stay home in a pandemic because our public school failed to teach him science or critical thinking skills.
The economy—and the social order it helps support—will collapse if the government doesn’t guarantee income for the millions of workers who will lose their jobs in a major recession or depression. Young adults will fail to launch if government doesn’t help reduce or cancel their student debt. The coronavirus pandemic is going to cause immense pain and suffering. But it will force us to reconsider who we are and what we value, and, in the long run, it could help us rediscover the better version of ourselves” – . Eric Klinenberg, professor of sociology and director of the Institute for Public Knowledge at New York University.
And could we have a conversation re the precautionary principle?
re point (10): and FIRE
Population growth in Australia is unsustainable, it will end.
It should end sooner rather than later, but might not. It is difficult for the general economic and environmental interest of Australians to overcome the very many public and private special interests in FIRE, Education, Immigration, and Infrastructure industries, to name a few.
re point (11): Much of our public expenditure has gone on population growth, having not just to replace capital but to add to it in an attempt to keep up, often at exceptional cost due to scale diseconomies, eg road tunnels.
re point (3): Expenditure to attempt to deal with population growth has been a major driver of asset sales and private ownership of new infrastructure.
re Less individualism: not much point following politicians’ “communal” entreaties to save water if those same politicians are bent on population growth. (An argument I recall you making?)
“Much of our public expenditure has gone on population growth”
But how much is “much”?
The govt claims that the biggest driver in welfare costs is the NDIS. It’s most likely that their claim can be substantiated.
The topic assumes that there will be a post-coronavirus world. This is not certain. COVID-19 might become endemic. Infection could be maintained at a baseline level in any given large population in a given geographic area without external inputs. A vaccination might not prove possible. So far no vaccine has been created for any serious coronavirus threat and maybe not for any coronavirus at all (though I cannot confirm this latter contention yet).
“Coronaviruses without preventive vaccines are the Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV), and the novel coronavirus SARS-CoV-2, which causes COVID-19 disease in humans.
The need for human coronavirus vaccines was first identified in the mid-1960s. The emergence of a highly pathogenic coronavirus (CoV) in the Middle East has sparked new interest in human coronaviruses around the world. MERS-CoV was identified in 2012, almost 10 years after the highly fatal human SARS-CoV emerged from China in 2003.
As of April 1, 2020, the US Food and Drug Administration has not approved any preventive or therapeutic coronavirus vaccines for use against the SARS, MERS or SARS-CoV-2 (COVID-19) coronaviruses.” – Precision Vaccinations.
There is also some concern that COVID-19 might be bi-phasic. That is it could reoccur or be reacquired another one or more times. Some bi-phasic diseases are much more dangerous the second time round. Of course, these are speculations but then so are assumptions that we will arrive at a post-coronavirus world and economy.
Not so long ago, there was much discussion and concern about our fat demographic tail. Everyone was assuming that people would live and live actively to 90 years or more. All these life hopes and economic fears (funding the aged demographic) now look likely rather foolish. Each of us in the older age bracket must readjust our expectations and face a nearer approach of our own morality. I once thought I might live to 90 (given family history) and seeing what I’ve seen I feared that. I don’t have to worry about that anymore. If we have season after season of COVID-19, which is still very possible, I reckon my life expectancy from current age 65 is about 10 years. A lot of people will be in the same boat as me. Such is life. Entropy always wins.
As baby boomers we thought we owned the world. We thought it was always going to be our little oyster. Now we find the world owns us after all. This was always the case. We just didn’t know it. Our hubris was extreme. Economics in praxis has been sclerotic, run by near-senile billionaires and their ideological lackeys and functionaries. Economics in theory was captured by anti-scientific beliefs that the economy was not embedded in and conditioned by the real biosphere and by the real capabilities and limitations of humans. Finally, the field will progress again. Economics will advance one funeral at a time.
RIP Capitalism – Killed by COVID-19.
Typical risible nonsense. This pandemic will be all but forgotten 5 years after it is over and Capitalism will continue on its merry way with a skip, a twerk and a twinkle its eye.
Moreover, the first institution on the chopping block should be the World Health Organisation, which is a manifestly incompetent, toadying organ of the Chinese Communist Party: https://unherd.com/2020/04/how-the-who-has-failed-us-again/
(1) Let us hope we have not all but forgotten the epidemic in 5 years because that will mean we have returned to our previous state of complete unpreparedness for epidemics.
(2) Capitalism (or any economic system) cannot continue indefinitely on its merry way ignoring negative externalities and unleashing climate change, sea level rise, the sixth mass extinction and zoonotic diseases. Social and economic crises will be continuous from now on. We are in no danger of forgetting we live in a changed world, at or beyond many tipping points and spiraling dangerously out of control. It’s a planetary emergency. It’s also a geostrategic emergency.
(3) There are serious problems with the WHO and they do look like an organization which has been bought and suborned by the Chinese Communist Party. There I agree with you. I too assess that the WHO failed us and has become mainly a propaganda organ for the CCP. Indeed, absolutist China is likely to become very dangerous from now on (to the West and the rest of the world) as it seeks to exploit the new economic and geostrategic asymmetries introduced by COVID-19.
(4) It was not only the WHO which failed us. Our own governments failed us. This is the more grievous failure. It is closer to home, we should have had much more control over the course of events and most of our pain, loss and damage to date is self-inflicted, not least by fundamentalist beliefs in neoliberal free markets and endless growth capitalism.
Mind you, I think the world really does need an organisation that does what the WHO is supposed to do. The thing is, any such organisation must be 100 yards distant from political shenanigans.
Hugo: your argument is that it would be more likely that our politicians would create a viable WHO equivalent if they started from scratch? Should they fund both until the new one is working, or do you think we should kill the existing WHO then afterwards start discussing its replacement?
The universal wisdom is ‘This too shall pass’.
Nothing lasts for ever. I will die, you will die, the human race will become extinct, and even the planet won’t last forever.
So population growth in Australia, too, will not continue forever.
akarog says: ““Much of our public expenditure has gone on population growth”
But how much is “much”?
The govt claims that the biggest driver in welfare costs is the NDIS. It’s most likely that their claim can be substantiated.”
Last point first. The government cannot, has not, and will not substantiate any of their claims re NDIS. Follow the money. On paper there are supposed to be big NDIS costs, but if a huge lump of the money hasn’t actually had to be spent then any government claims relating are bogus as is usual.
First point second. The answer is already contained in the paragraph from which your quote comes. The entire paragraph:
“re point (11): Much of our public expenditure has gone on population growth, having not just to replace capital but to add to it in an attempt to keep up, often at exceptional cost due to scale diseconomies, eg road tunnels.”
Infrastructure has a planned lifetime of some 40 to 50 years. So 2% plus of the total capital valuation of all infrastructure is required yearly for its maintenance and renewal. Add to that the exponential population growth of some 2% requiring full up front cost covering of the consequent exponential necessary expansion in infrastructure and also up front the expansion of the 2% annual maintenance cost and it is easy to see how “Much of our public expenditure has gone on population growth”!
What is the current valuation in several currencies (as much is imported) of all Australian infrastructure? And what is 4% of that? And how and by who and by when is that all paid?
If population growth was unsustainable gdp per capita (PPP) would fall. But it hasn’t, which makes me think that the objection to population growth has other, more sinister origins.
Ah, but GDP per capita has fallen, even gone negative, in several quarters in the last several years as was reported widely at those times.
But back on track to your query: “But how much is “much”?”
Again, please provide figures for “What is the current valuation in several currencies (as much is imported) of all Australian infrastructure? And what is 4% of that? And how and by who and by when is that all paid?”
Additionally provide any infrastructure deferment interest costs, any funding redeployment costs ( government wide, eg biosecurity), fire sale costs of public asset sales, added lost public time costs (eg in traffic), costs of failure to meet educational targets in schooling, and the costs of deaths, costs of pain and suffering (blocked hospital beds and lists, ambulance ramping, public screenings etc), and a figure for environmental costs.
And a follow in from Svante’s “Additionally provide any infrastructure ” which is privatised or still quasi ppp / owned by super funds – the cost of “the CBI applied a 30% mark-up to the firms’ asset values.” Please. As it is not a time for notional assets values or irr based percieved profits.
> If population growth was unsustainable gdp per capita (PPP) would fall.
Only if you think GDP measures something useful, which often translates to your only measure of value is money. I assume that’s not the only reason GDP per capita falls, otherwise the last couple of months have seen Australia’s population growth become dramatically unsustainable.
Other symptoms of unsustainability might be things like farm efficiency falling as measured by net inputs to net outputs (viz, total output less unwanted output); changes in non-human biomass; species extinctions; loss of human-habitable area; change in climate; and so on. The money value of many of those shifts to unsustainability can be positive, sometimes dramatically so (the conversion of farmland to McMansions, for example).
Yes but aren’t we talking about $$ costs of infrastructure?