These are hard times. The twin crisis of public health and economic downturn has no simple solution. Some economists are now saying the economic effects of the Global Coronavirus crisis, or of how we’re responding to it, could be worse than the GFC. The parallel between the two instances (presumably they’ll soon bear the twin labels GFC and GCC) looks similar in terms of the suddenness of impact.
Some economists, such as Justin Wolfers, an Australian economist at the University of Michigan, are saying the current situation is more akin to the Great Depression, when official unemployment rates in countries like the USA and Australia were over 20% for many years. It is an awesome prospect. To avoid it happening requires remedial responses and purposeful policies from all whose behaviour influences economic outcomes – individuals, governments and public institutions (among which universities, for example, should be exemplars).
Individuals have been acting, as ever, with varying degrees of social responsibility. Panic buying in the shops, for example, shows us at our worst. It is indicative of how prioritising self-interest is destructive of social bonds. Reflecting on this, an editorial in the latest issue of The Saturday Paper opined ‘Really we should not be surprised. Panic buying isn’t an aberration – it’s the logical extension of a political system based entirely on selfishness an indifference, on the hoarding of wealth and property.’
Governments of neoliberal inclination may bear some responsibility for nurturing these sentiments. But, whatever their ideological inclination, they surely have the prime responsibility for developing remedial policies when society-wide crises occur. This expectation of the state is clearly embodied in Keynesian economics. Developed nearly a century ago – and having particular resonance in the context of the Great Depression – Keynes showed how governments can minimise the devastating economic and social effects of economic downturns. Otherwise, recessions turn into depressions with economically wasteful and socially hurtful long-term effects. Capitalist businesses lay off workers and cancel investment plans, further reducing the incomes on which the future demand for goods and services depend. Hence the standard Keynesian economic response of government policies to stimulate demand. Fiscal policy does it directly: increasing government expenditure boosts people’s incomes and capacity to spend. Monetary policy does it more indirectly by lowering official interest rates in the hope that ‘cheaper money’ will encourage businesses to borrow and invest more, creating more jobs and incomes.
That was the essence of the Australian government’s dominant policy response to the GFC. It was Keynesian orthodoxy and it clearly worked, preventing the economy experiencing the recession that had emanated from the USA and quickly spread worldwide. The Liberal-National coalition criticised the Labor government’s policy at the time, and have been blaming their own budget deficits on the ALP ever since, while promising that elusive ‘return to surplus’. Their new embrace of Keynesian stimulus was forced on them by the GCC, quite tentative at first before bringing the size of the stimulus up to about 3% of GDP in a second policy package this week. Clearly, there cannot be any budget surplus in Australia for a very long time now, irrespective of which party is in government. Nor should there be, because the current crisis has shown, for all who previously weren’t aware, that there are bigger social priorities at stake. Perhaps we can now bid a final farewell to the budget surplus fetish.
It has to be said though that deficit budgeting is not enough. Indeed, the standard Keynesian response to the onset of a recession looks particularly problematic in the context of the GCC. Official interest rates are already almost zero, so there is no prospect of economic stimulus there – other than perhaps, perversely, to inflate real estate prices. Even the substantial fiscal stimulus is likely be ineffective in keeping people in jobs, because the health aspect of this crisis makes it so different from a ‘normal’ recession. Where workplaces bring people into close physical contact, making the disease likely to be transmitted, it is that much harder to boost employment levels. The income stimulus therefore has to be bigger because it cannot be tied to actually being on the job. Thus, it is because the current GCC is a twin crisis, having intertwined health and economic dimensions, that a ‘financial fix’ is inherently inadequate.
There needs to be a comprehensive plan for resources reallocation in response to the health challenge. Logically, this requires redeployment of people who are suddenly unemployed – through no fault of their own – to activities where existing resources are under severe strain. The latter include health-care and elder-care, most obviously, because workers in those fields are currently being expected to cope with additional workloads over and above the call of duty. The possibilities for doing this are constrained by the need for distinctive skills and precautionary measures, of course. But mobilisations like this are what happen at the onset of a war – and it is interesting to see the Prime Minister now using this language. Effective mobilisation and redeployment is hard to organise in a capitalist market economy though, which is why wars often lead to market arrangements being curtailed, replaced or more strictly regulated.
These are circumstances in which a public sector ‘borrow and build’ approach needs to be on the policy agenda, especially when interest rates are approximately zero. Indeed, this has been the case for years: governments can normally borrow more cheaply than private investors because there is little, if any risk premium. Now loanable funds are at historically low interest, there is effectively free money to borrow. This could be used for restructuring our economy, improving public sector facilities, including health facilities of course, and also moving towards ecological sustainability of our energy, transport and industrial arrangements.
The GCC, coming hard on the heels of the bushfire emergency in Australia and accelerating climate change worldwide, signals the need for much more than short-term correctives. Indeed, at a time such as this, it is appropriate and desirable to be considering more radical policy measures, such as the introduction of Basic Income, the adoption of a Green New Deal, cooperative patterns of business organisation, perhaps nationalisations of industries that are crucial for our survival. Keynesian stimulus can help with short-term crisis-alleviation, but it is policies like these that address the deeper structural problems that have been set aside for too long. In this sense, the GCC may be regarded as a wake-up call. Now is a time to be linking crisis management to meeting the longer-term social and ecological challenges of the era.
Other public institutions, particularly universities, could also play a leading role in this linking of short-term responses to long-term goals. Indeed, universities are uniquely placed to create sources of stability and forward planning in these troubled times. They have loyal staff and a great reservoir of public goodwill , especially from alumni, if they continue with long-term contributions to knowledge and social advancement. They can think and act long-term, not like capitalist institutions that are always focussed on the short-run bottom line. To embrace the economics of austerity at this time would not be helpful.
Indeed, austerity policies, as part of the broader neoliberal agenda, have failed on their own terms anyway. One recent book, reviewing their experience across capitalist countries during the last four decades, concludes by saying that ‘austerity has been tested by time and it does not work’*. We’ve had a profound wake-up call. Now is a time to make a just transition to a different type of economy that emphasises nurturing, building and sharing.
The question for all of us, including public institutions, is do you want to become part of the problem by adding to the downward spiral OR part of the solution by creating conditions conducive to recovery, long-term stability and sustainability.
*Jon Shefner & Cory, Blad, Why Austerity Persists, Cambridge: Polity Press, 2020.
Frank Stilwell is Professor Emeritus in the Department of Political Economy at the University of Sydney and Vice President of the Evatt Foundation.