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This graph from Martin Wolf’s piece today shows the terrifying economic impact of Covid – and why governments are rightly throwing the kitchen sink at trying to protect economies. Yet we need to keep an eye on the future (THREAD)
https://www.ft.com/content/b427db58-77e6-11ea-af44-daa3def9ae03
https://www.ft.com/content/b427db58-77e6-11ea-af44-daa3def9ae03
This crisis will play out in phases. Current one is the most unprecedented: hibernation. Health imperative dominates: limit spread of virus/ensure NHS can cope. HMG is paying business to stop operating. What @Gilesyb calls "anti-stimulus fiscal spending" https://www.instituteforgovernment.org.uk/blog/coronavirus-immediate-questions
Second phase will be gradual removal controls to get econ back to operating more like normal - v difficult interplay w/ medical advice. But demand won’t come back naturally without help. So HMG will need to do demand stimulus - and support areas suffering from supply bottlenecks
And it is crucial companies aren’t so damaged that this phase cannot be started properly. That is why even during the hibernation phase you need to look forward to recovery. See this from @rcolvile https://www.thetimes.co.uk/edition/comment/stand-by-for-a-stuttering-economic-recovery-2fxt2kbv8
Phase 3 will be long-term econ restructuring. Politically difficult: HMT will need to go from “whatever it takes” support to save large swathes of the econ to accepting need for market-driven restructuring resulting from permanent shifts in behaviour (e.g. travel)
HMG will also drive some of the restructuring in this phase, to mitigate new risks and boost resilience of public and private sectors
Then the final phase will see a reckoning on the public finances as HMT faces up to a fiscal situation as challenging as any since WWII.
Then the final phase will see a reckoning on the public finances as HMT faces up to a fiscal situation as challenging as any since WWII.
And throughout these phases there are at least 3 sets of big issues to grapple with:
1/ Role of the state. Should it permanently intervene more in directing econ activity? Should it become provider of more services as an operator of last resort? Should it expand the safety net?
1/ Role of the state. Should it permanently intervene more in directing econ activity? Should it become provider of more services as an operator of last resort? Should it expand the safety net?
2/ What is the attitude to business? Growing sense in recent yrs that business must show social purpose/reflect broader interests than shareholders (e.g. customers/suppliers/workers/communities). Now the state has stood behind every business, calls for payback will become loud...
3/ And finally, who pays for all this? Cuts to public services/welfare were main tool of last consolidation, but surely impossible now. Increasing acceptance we can live with more borrowing, but some tax rises inevitable: how will burden be shared b/w different groups?
Too early to say whether this crisis marks a lasting turning point for the econ (i.e. a 1945/1979). But it is throwing up deep Qs about our future economic model as we move through the different phases of crisis and recovery. Creative solutions required... ends/
