‘Our economic and social prospects in the coming decade depend on today’s policies. The recovery will not gain steam without more confidence which will not recover without global cooperation. Governments must seize this opportunity to engender a fairer and more sustainable economy. Prospects come from dialogue and cooperation at national and global levels.’
Laurence Boone – OECD Chief Economist
In the week that it was reported that in April the UK economy suffered a record slump with GDP plunging by 20.4%, the OECD suggested that it would likely suffer the worst damage from the Covid-19 crisis of any country in the developed world. It also noted in its most recent report that the global economy was now experiencing the deepest recession since the Great Depression in the 1930s, with GDP declines of more than 20% and a surge in unemployment in many countries.
It is clear that whilst many countries are now coming out of lockdown, the fear of a second wave and ongoing public and business uncertainty will continue to impact on future economic activity. Just this week there has been a slew of redundancy announcements. BP is planning to cut its workforce by around 10,000 worldwide and in the UK British Gas by 5000 and the Chemicals firm Johnson Matthey by 2500. Heathrow is also launching a redundancy programme as the number of flights and passenger traffic has plummeted, with no sign of any recovery as travel restrictions continue.
This, unfortunately, represents just the tip of an iceberg threatening to sink economies around the world without continuing and adequate state intervention through increased spending. The ManpowerGroup, in its employment survey published this week, found that companies in all the major sectors of the economy are more likely to cut jobs than to hire over the next 3 months and revealed that it was the weakest forecast since records began in 1992. It has been estimated that the unemployment rate in the UK could reach 10% during the second quarter of 2020.
A report by Pro-Bono Economics also published this week reveals that despite the government bailout in April, one in 10 UK charities are facing bankruptcy by the end of the year as a result of financial shortfalls triggered by mounting demand for their services and lost fundraising income due to shop closures. The study said that two-thirds of smaller, local charities had made significant cuts to their services and one in eight were expecting to have to terminate their operations. According to the report it had also forced some big-name charities to use public donations to support those services provided under contract to local authorities and central government (we will return to this later on).
Alongside the economic consequences of the pandemic, Sara Caul, Head of Mortality at the ONS (Office for National Statistics) noted in the statistical report of deaths occurring between1st March and 30th May, that people living in more deprived areas had experienced Covid-19 mortality rates more than double those living in less deprived areas.
Not only are we faced with the very real tragedy of Covid-19 and its effects on the lives of those who have lost loved ones and those that have witnessed the ravages of the disease in our hospitals and care homes, the IFS (Institute for Fiscal Studies) in its Deaton Review observed this week how existing deep-rooted inequalities lay at the heart of the current disparities identified between UK regions.
The IFS then suggests that inequality can only worsen if ministers fail to act, and risks entrenching already deep divides. But confusingly and at the same time as recognising this, then goes on to suggest that the crisis is likely to leave challenging legacies for inequality given that the government’s capacity will be constrained by record peacetime levels of debt.
LET’S STOP RIGHT THERE.
Whilst the IFS deplores the existence of inequality and identifies some of its causes, it fails to grapple with the primary reason why inequality has risen and indulges in a false story which suggests that addressing it will be hindered by the already high levels of government debt.
What the report fails to mention, is that those disparities exposed via the pandemic are linked to the systemic frailty of a decaying economic paradigm. The decades of low wage growth which have left households unprepared financially to face involuntarily imposed unemployment as a result of Covid-19, the stark inequalities that have arisen as a result of an economic system which has penalised working people and impacted on access to good healthcare, education, housing and essential public services. It reveals how government, via its policy decisions and through a decade of austerity and cuts to public spending, has left a landscape ravaged by rising poverty and inequality. It has impacted communities across the country, particularly in the South West and the North, where cuts to local government spending, combined with increasing job insecurity and low wages have affected both poor white and ethnic populations to also create fear and societal division.
David Cameron’s big society, namely the charitable/voluntary sector, has also been affected by fallout from austerity, combined with the economic effects of Covid-19 on its finances. Years of cuts to local government grants have, in their turn, affected many local charities who were already financially stretched. Closure of fund-raising avenues has left many faced with difficult decisions. This highlights what happens when government shifts responsibility for the provision of essential services to the charitable, voluntary sector whilst at the same time cutting public expenditure.
We are facing a disaster of monumental proportions. The economic fallout from Covid-19 is bad enough, but when combined with the threat posed to human existence by climate change, it is ethically and morally indefensible to hide behind false narratives which are designed to limit the actions a government can take to address these issues. The crisis is systemic and it is incomprehensible that our leaders, along with think tanks such as the IFS and media hacks, are still working hard to keep the hierarchies of power in place with false narratives about how money really works whilst a credulous and uninformed public accepts the dominant paradigms as being unquestionable and unassailable.
For the moment the public purse has been opened to avert economic disaster but as GIMMS has discussed before how long will it be before the old narratives about unaffordability and paying the debt back creep back into the political and public discourse?
As Professor Prem Sikka wrote in a recent article ‘the right will try and push for a new round of cuts after this crisis. It would be economically illiterate to do so…It’s time to bust some neoliberal myths about debt’
If we continue to allow such myths to dominate, the consequences will be dire for the current and future generations.
As Covid-19 has dominated the news for weeks, it has already been made clear that health and wealth inequalities have played a tragic role in deaths, which combined with the future challenges posed by climate change will be a make or break moment for real and sustainable change.
In an open letter this week the UK Health Alliance on Climate Change, formed in 2016, urged the government to follow its six principles for a healthy recovery from Covid-19. It made clear its position that the health of the planet and the health of people are intimately connected and as such future government action must prioritise the health of both.
Whilst those principles are vitally important and essential to any future governmental policies it will be, as Prem Sikka has already observed, only be a matter of time before the issue of affordability and increasing government debt to pay for it will be raised.
However, without a sea change in the political market-led ideology which currently guides government policy, along with the acceptance of the very real resource constraints which all governments face when making their spending decisions, then those six principles will see little chance of being enacted to deliver those public purpose goals to secure the future.
Furthermore, whilst we remain mired in the household budget version of how government spending happens, we will equally accept its spending limitations and thus our own demise as a species.
This is our wake-up call to protect future generations, not from tax burdens as the orthodoxy prescribes, but from the burden of environmental decay and increasing climate uncertainty.
An economic recovery will depend on a new economic paradigm which puts people and the planet first – not more of the same with an environmental extra tagged on. A Green New Deal combined with a Job Guarantee to allow a smooth and just transition is the way forward. That can only be underpinned by an understanding that government is not limited by money, but by the resources it has at its disposal to deliver its objectives. We can’t allow past narratives to dictate the future.
As a nation, it will be up to us to decide whether we go forward or stay stuck in the exploitative and destructive paradigm which is currently dictating the economic recovery in terms of more unsustainable growth, more futile consumption to feather the bank accounts of global corporations and more eco destruction.
Our future depends on understanding what is possible and what is not. And getting informed is the first step towards a better understanding of the choices we have.
As such, GIMMS can’t end this blog without a mention of two important books which were published this week, and which complement many others before them. Firstly, ‘The Deficit Myth’ by Stephanie Kelton shatters the myths that prevent us from taking action because we can’t get beyond the question of how we can pay for it. Whilst written for an American audience, it is equally applicable for the UK.
And secondly, ‘The Case for a Job Guarantee’ written by Pavlina R Tcherneva, which challenges the idea that unemployment is unavoidable and necessary for an efficient economy and invites us to imagine quite a different world where unemployment is eliminated and which has implications for the wider context of a Green New Deal.
And if you missed this first time around, readers interested in historical background and learning more about how money really works in the post-gold-standard era couldn’t do better than ordering Bill Mitchell and Thomas Fazi’s jointly co-authored book ‘Reclaiming the State’.
And finally, don’t forget GIMMS website, which is a fount of information for anyone – from beginners through to those wanting more detailed information. Starting with our information sheet ‘An introduction to Modern Monetary Theory’.
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