My inspiration was Otter’s endorsement of Bluto’s rousing speech in Animal House; “I think this situation absolutely requires a really futile and stupid gesture be done on somebody’s part.”
Is there be a more “futile and stupid gesture” than trying to work out the economy as it teeters silently over the edge?
The global economy collapsed in four weeks. Pandemics have brought empires to their knees and altered human civilizations; there is no reason why this pandemic can’t also aspire to be a great historical catastrophe.
Australians had until the last month enjoyed three decades of uninterrupted economic prosperity. Sure, we felt a few bumps but nothing like this.
Our stable and democratic political system, our natural wealth, resources, and agriculture, our size and distance from the world are important factors in our economic success historically, but they’re not enough. The market reforms unleashed in the 1980s by the Glimmer Twins of Australian politics, Labor’s Bob Hawke and Paul Keating, are the reason we are able to deal with the public health and economic emergencies that COVID-19 has gifted us. No-fun conservative Liberal Prime Minister John Howard and his Treasurer Peter Costello extended the Hawke-Keating reforms. Then geek central, Labor’s Kevin Rudd and his Treasurer Wayne Swan, were able to dip into our substantial granary to get us out of the Global Financial Crisis (GFC) in 2008. As an aside, the GFC’s impact compared to COVID-19 is… hmm…like compering a stiff neck with a pandemic!
The International Monetary Fund (IMF) has described the economic decline as the “worst since the Great Depression of the 1930s” and added that a “prolonged outbreak would test the ability of governments and central banks to control the crisis.” Gita Gopinath, the IMF’s chief economist thinks that COVID-19 could knock $9USD trillion off global GDP over the next two years.
READ MORE: States of emergency: the importance of maintaining the social contract
Heavy rock economics
British economist John Maynard Keynes has come back into fashion. He saved the world, (sort of), from the Great Depression and after the end of WWII – when the world really destroyed itself.
Keynes’ ideas nurtured post-War reconstruction and unleashed unprecedented growth between 1945 and 1973. Thank Keynes for full employment, national health and public education systems. There’d be no Beatles without Keynes. Four working class Liverpool boys would not otherwise access great free grammar schools.
His economics showed up the internal failure of communism, as the west was able to feed, clothe, educate, and nurture its citizens and create a working-class aristocracy. Keynes worked out governments need to step heavily into the market when catastrophic global events damage it, so as to create employment and thus restart demand.
Keynes is to economics what Led Zeppelin is to Rock music. Virtuosic, exciting, but after the eighth album, bombastic, slow and a little out-dated. By the late 1970s, the never-ending drum and guitar solo of stagnation and inflation; rolling industrial disputes; bloated government deficits and diminishing government revenues; tariff protection of uncompetitive industries were coalescing and leading the west to a boring death.
At the same time, new nimble hi-tech economies of Japan, South Korea and South East Asia jolted forward through a mix of liberal economics and statism.
The west began to look like Argentina and Greece in the worst of their financial crises.
Chicago punk economics
In comes Chicago based economist, Milton Friedman who was to economics what the Sex Pistols were to the late 1970s stadium rock dinosaurs, exciting, cleansing and chaotic. Friedman unleashed the ideas of microeconomic reform, of allowing the market to do what it does best, tailor services and products to citizens’ needs. His ideas thrilled Keating, Thatcher, Reagan, Clinton, Blair and other bright reformist leaders. Some like Thatcher and Reagan reformed with pace and cruelly; others like Keating, Blair and Clinton were subtler. They all did what had to be done to stop the west from hitting the iceberg.
In China Friedman was a reason Deng Xiaoping “opened the windows” after the calamitous 30-year rule of Maoists. Think, China 1949-1974 chaos, mismanagement, starvation and all-round brutality. Now think China 1975 – 2020, the world’s second most advanced economy with lots of food and stuff. Yeah, ok COVID-19 but what the fuck, pandemics always come when the global economy is ticking along. The Plague of Justinian in 541CE afflicted the Byzantine Empire and its capital Constantinople, as well as the Sasanian Empire and cities around the Mediterranean Sea.
Anyway, anti-China sentiment has more to do with the US’ fear of China, innate racism by some in the west, than the reality that plagues hit us when our economies are intertwined and trade routes are global. If you want your new iPhone and your # to start revolutions, you need global trade.
Friedman sought a limited expansion of money supply by the state, which means when the Keynesian economy reaches its peak growth, then the state can retract and squirrel away a surplus ready for the next big screw up. The reason Australia, US, Great Britain, Germany, Singapore, Taiwan, and China can invest in the momentous task of saving us from Dante’s fourth circle is in part because of Friedman’s economics. His ideas helped the rise of China and India, nations that forty years ago suffered grinding poverty and regular starvations. Africa’s rise over the last ten years also has much to do with Friedman. The post-colonial conflicts, the vicious dictatorships and Soviet economic theories had reaped as much damage to African nations in less than 25 years, as did European colonialism in a century.
The reason Australia, US, Great Britain, Germany, Singapore, Taiwan, and China can invest in the momentous task of saving us from Dante’s fourth circle is in part because of Keynes’ and Friedman’s economics
Now we need Keynes again, or Prog-Rock is back!
Unemployment may reach 10 per cent to 20 per cent. That means according to the latest Grattan Institute assumptions up to 2.5 million unemployed in Australia. In the US over 25million unemployed.
Keynesian interventions by the state in liberal economies have been done well before. President Roosevelt’s New Deal got the US out of the Great Depression. The US’ Marshall Aid Plan rebuilt a Western Europe after World War II and raised Germany and Japan from the ashes to become powerful democratic capitalist economies. In Australia we saw the Snowy Mountain Hydro Scheme, growth in health and education spending, as well as and the protected manufacturing.
The Federal Treasurer Josh Frydenberg sought advice from his oracle John Howard and he said, “Josh, there are no ideological constraints at this time.” He then pronounced “ideology dead in the time of the COVID-19 pandemic.” (ABC’s Insiders: April 11, 2020)
Over 17 per cent of Australia’s GDP, has been invested into our economy over six weeks. Yes, it feels much longer.
“By the end of March, the measures announced totalled $213.6bn in direct, on-budget spending from the federal government, $12.8bn from the states and $105bn in lending from the Reserve Bank and the federal government.” (The Guardian: April 15, 2020)
Schemes like JobKeeper that offer employers $1500 for each employee to keep them in a job, which may no longer exist, and the doubling of the JobSeeker payment to the unemployed- which are many of us now – may seem like a new socialism, but is in fact capitalism doing what it does best, using the ‘wealth of nations’ to meet the requirements of the social contract. Capitalism adapts and changes even Karl knew that.
Travel, tourism, pubs, restaurants, most of the arts and entertainment lie comatose and many will not be resuscitated. We will need to ensure that our airlines do not disappear totally. Retail is near dead except for the highest spend on groceries for a decade; there are only so many tracky decks one can buy for this crisis.
Australia’s agricultural sector, supermarkets, DIY industry (loathsome endeavour), telephony and mining are still humming. Globally nanotechnology and robotics have not felt a bump. Investment in health has been ramped up at levels not seen since the 1960s.
International travel, new cars, health insurance, private school fees will become luxuries for a while. The middle classes flight from state schools will be stymied and the brats may have to attend state schools again. That’s not a bad thing either for state or private schools, also great for aspirational parents now filing up on dole queues.
Travel will be local until all borders open, even then our new agoraphobia may take time to subside. I, for one, love my deck.
READ MORE: Economic prospects after ‘once-in-a-century’ coronavirus crisis are gloomy – but it’s not all doom
New working relations may emerge as corporations find that many of their staff can work from home. They’ve had proof of concept during lock-down. It may be a cheaper alternative, as employees require less of a real estate footprint. Unemployment will create a surplus of labour that will slow down already low wage growth. This may offer respite to small business, which has been hit so hard. Banks should keep interest rates at the historic lows they have been, to support liquidity for the houses we need to buy and businesses we need to start-up again.
Universities tanked-up on the sugar-hit income from foreign students may be forced to sell parts of their over-leveraged property portfolios. They will secure more government subsidies for Australian students. Those students in year twelve, that survived the interruption of COVID-19, should just get into uni. Just don’t tell them so they do more than play video games and watch YouTube for the next four months.
Migration, the main driver of economic growth will slow down, but hopefully not for too long. Migration is good for housing, furniture, automobile, whitegood, computer, mobile phone, tablet and computer sales. As well as for manufacturing, agriculture, trade and services, oh yes, and culture.
Governments will need to spend on making jobs. Labour market and youth affairs programs like in the 1980s will also get a boost, because youth unemployment could hit 25 per cent. Many over 55’s who survive COVID-19 may never see a job again. They can grow tomatoes, raise chickens, punish themselves with DIY, join volunteer groups – or just drink and smoke weed while listening to Led Zeppelin.
Can we rejuvenate the economy? Maybe. China is reopening its factories. There may be a new focus on local manufacturing. A more nationalistic form of capitalism may emerge. The global financial architecture and new technologies should make the resuscitation easier. Should…
Now all we can do is stay home and maintain the futile gestures of guessing what a post-COVID-19 future will look like. Oh yes, let’s make sure we are all registered with MyGov or the ATO for some type of handout thanks to Keynes and Friedman.
Keynesian interventions by the state in liberal economies have been done well before. President Roosevelt’s New Deal got the US out of the Great Depression. The US’ Marshall Aid Plan rebuilt a Western Europe after World War II and raised Germany and Japan from the ashes to become powerful democratic capitalist economies