Between 1845 and 1849 Ireland suffered what was called a potato famine. About a million people died. A million more emigrated. Each was about a million people. Ireland was a much bigger country back then than it's ever been since.
I say all this for a reason. These people did not die for a good reason. They died because of government policy.
There was probably enough food in Ireland for everyone to eat all they needed from 1845 to 1849. Not enough potatoes, I admit. But there was enough wheat, for breadmaking.
But there were two problems.
First, the landlords of Ireland still demanded what they thought they were owed.
And second, the people could not afford the wheat. So it was exported from Ireland.
And many of the people of Ireland died.
Please don't say government policy cannot have impact on a crisis. It can.
And that is also true of coronavirus.
And I am not going to discuss policies towards self-isolating, rationing of care or the availability of ventilators right now. I am going to discuss a different crisis, which is what coronavirus is going to have in common with the Irish potato famine if we are not careful. And that is the shortage of money.
I can't stop coronavirus happening.
Given the attitude of the UK government - which seems to want me and you to get it - there is little I can do to prevent that.
And given that I am 62 very soon I have no expectation that they will try to save me if I get really ill, however young I feel.
But I can say some things that might make a difference. And whilst there is no vaccine for coronavirus what I do know is that the secondary killer it might release is a shortage of cash.
I have already been explaining, patiently, that in a crisis what kills businesses is a cash flow crisis.
And what pushes individuals into insolvency, homelessness and all that follow from that is not in the first instance a loss of income - it's a lack of cash that does that.
In the long term coronavirus will be solved: such things always are. It is going to be horrible on the way. And we will lose people we love. But most of us will survive.
Our survival experience does, however, depend upon something else, and that is the preservation of the economy.
We will still need jobs later this year.
We will also need key companies (and many more are key than most people appreciate) to still be operating.
We will still need banking.
We will still need people who can afford to spend.
And all those things require that there be enough cash in the system to make sure that this happens.
Critically, there is no shortage to the amount of cash that the government can create to tackle this crisis. Tax is not required for governments to spend. Deep down every government knows that. They do because when they go to war they never ask who is going pay for it, or how: they simply get their central banks to turn on the money and the aggression begins.
Now we need to turn on those money taps.
Coronavirus is going to be bad. But if governments ration cash when there is no reason to do so then it is going to be very, very much worse.
I am not, overall, convinced by universal basic incomes. But I am right now. The government could pay them straight away: no household need fear coronavirus as a result.
And I am not concerned that saving all companies is always a good thing. But right now we don't have the time to choose who should make it. And a government tax holiday for all businesses would save all but the most marginal at present.
It's also apparent that I am not always the biggest fan of banks. But governments might need to bail them out right now.
At this hour of crisis - and it is that even though no one has declared one in the UK as far as I am aware - modern monetary theory has an answer to the biggest problem aside from those relating to health care issues that our country faces, which is the impending crisis of a cash shortage within the economy at large. And that answer is that all the money that we need now can be created by nothing more than a keystroke on a central bank computer, just as (for those who might worry about this) it can also be destroyed at some time in the future when the time is right.
There is then no need for a shortage of money now.
No one need be forced into making the wrong decisions now for cash flow reasons when they can be given what they need.
No business should have to fail because it cannot pay its tax.
Or be unable to repay its bank loans for the time being.
Every bank can give repayment holidays, and even new loans, if it can be sure of government support.
And all this is possible.
It was government policy that denied people food that killed people in Ireland in the 1840s.
We do not need government policy that denies people money causing massive long term harm to our economy now, whilst adding enormous short term pressure to those already profoundly worried by this virus.
The government needs to get back to the Dispatch Box.
It should be providing all the support people need.
Taxes can go unpaid.
And banks will be supported.
And it needs to say this now.
Government must confirm that when it says it will do everything necessary to beat this virus that includes creating all the money required to keep our economy going, without limit.
We cannot afford a government-created crisis on top of this natural one. And we have the choice to deal with the economic crisis, at least.
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Well Said!
Genuine question, whilst the policies outlined appear positive and the right thing to do, are there any potential negatives with this approach (such as hyperinflation)?
Unfortunately the response to coronavirus still seems a political choice as opposed to a targeted plan by both the Government and opposition. Sadly, both sides are being reactive as opposed to proactive at this time.
If there is no excess demand – and the massive threat is no demand – where does hyperinflation come from?
It comes from the myth that if you create money, you’ll get hyperinflation.
However, if there is a shortage of stuff, because people are unable to work to produce that stuff, then those with more money will drive up prices to get the stuff that remains.
So, governments will have to monitor the situation and maybe ration out available supplies so everyone is available to get what they need, and resist the temptation to UBI people more money so they are able to buy things that might cost much more now (like toilet rolls, hand gel, etc).
Ration8ng looks to be essential now
There was a depression in the USA in 1918-19, along side the Spanish ‘flu epidemic. The Harding administration cut government spending into the teeth of the downturn. Outcomes were rather different in the UK which increased government money printing a little and Central Europe which did so by a lot.
Much of the Third World is dependent on cash circulating to buy food. Typically this has been through minerals and tourism, though some economies are based on supplying (cheap) manufacturing labour.
Tourism $s have totally dried-up, mineral volume has crashed, mineral prices are also in free-fall.
We/IMF/World Bank etc, need to fund countries, in the way you suggest we should fund companies!
It will be interesting to see if world governance can come up with the goods, or if civil unrest, due to hunger happens, city by city across the Third World.
For what its worth Simon Wren-Lewis is taking a more sanguine view of the crisis we all face..
“This ‘direct’ impact of the pandemic will reduce GDP in that quarter by a few percentage points. The precise number will depend on what proportion of the population that get sick, on what the fatality rate in the UK turns out to be, and how many people miss work in an attempt not to get the disease. The impact on GDP for the whole year following the pandemic is much less at around 1% or 2%, partly because output after the pandemic quarter is higher as firms replenish diminished stocks and meet postponed demand”
He is wrong
Just been announced that China GDP dropped 13% in first 2 months of 2020
That alone is a 2% drop over the year, if we instantly recovered!
Thanks Richard. I think we could be in real danger of the economy collapsing. I am sure you are right about this.
Howard says “I think we could be in real danger of the economy collapsing.” Having been out this evening to a social occasion where I’m introduced to elbow bumping as de rigeur, I’m inclined to think we could be in real danger of not recognising this as an extinction event when, sans any genuine cure, that’s what it promises to be. If we can’t touch each other for fear of infection, and it seems we can’t now, how do we form relationships and reproduce?
This won’t last Bill
Richard you correctly stated that that the Government running a deficit means that the private sector must be in surplus. Thus, Modern Money Theory (MMT)addressing the problem of Covid-19 comes to our rescue. However, we are ignoring the elephant in the room. The private sector consists of both the 1% and the 99%. This elephant is the central criticism of Capitalism — who gets the money. Does it remain circulating within the real economy increasing everybody’s well-being, or does it as now get siphoned off by the 1% to increase income and wealth inequality. The income and wealth inequality that the electorate love so well. We know the answer, the dominant position of Finance Capitalism will ensure it flows up to the 1% and further impoverishes the 99%. This is shorthand for stating what we already know but will not admit. The cost trajectory of Capitalism is on a positive exponential curve. That is the necessities of life become increasingly unobtainable for most of our people. That trajectory is now vertical — hence near zero interest rate to the 1%.
The cure is to set our cost trajectory on a negative exponential curve. Part of the solution is to introduce Worker Self Directed Enterprises (WSDE’s) into the workplace together with their own investment and retail banks.
This is anathema to the constituency of our ruling class, WSDE’s have their roots in the Marxist tradition. They pose a direct challenge to the economic system of Capitalism that we all live in. The two are incompatible. It was part of Labour’s economic policy to help create and support a strong WSDE sector. The MSM et al didn’t take kindly to this challenge to the stats quo. Their line of attack was to launch a barrage of vile accusations centered around Antisemitism and engage in character assassination against one of the Party’s greatest leaders.
At last – sense!
Can someone tell please Phil Inman as the Observer – duh!!!? What he has written this morning is absolute crap.
I had better go and read it
The other comparison is that in the nineteenth century Britain was a country on the gold standard. The current government is not, so has no reason left not to create money.
Except for the old bogeyman of hyperinflation. With the economic and societal hit of an epidemic, hyperinflation is a complete fantasy.
I think both the UK and the US will do enough, the much bigger risk lies in the Eurozone.
https://www.ft.com/content/d8086302-6545-11ea-a6cd-df28cc3c6a68?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content
Germany has announced unlimited support for companies
“Germany has announced unlimited support for companies”
That is precisely the point..the Euro has made Germany disproportionately wealthy and the response so far inside the Eurozone is looking like it will further increase those imbalances. The FT is saying the inherent bias towards Germany and subsequent inequality puts the the EU at risk.
I accept that risk
Lagarde got bitten though the other day
I don’t think they’ll do that again
And the FT would not agree with you on the US – about which it is very worried – see editorial today
Even though what you are proposing is precisely what’s required, you know and I know – and most of us here know – that this is the last thing this mendacious government will do. The government will do everything it can to minimise the use of fiscal policy to tackle this crisis. The herd immunity strategy dovetailed perfectly with this. Let the productive young take a hit assuming a small proportion will be infected and will recover quickly and minimise the impact on the economy. Let the non-productive old succumb, but give the impression of trying one’s best to protect them.
It hasn’t taken very much to get them to move on a bit form the herd immunity strategy, but they continue to display a marked unwillingness to take the necessary steps to reduce the spread of infection – quite simply because they don’t want to provide the spending to counter the inevitable social and economic impacts. I just don’t know what it’ll take.
“Let the productive young take a hit assuming a small proportion will be infected and will recover quickly and minimise the impact on the economy. Let the non-productive old succumb, but give the impression of trying one’s best to protect them.”
So they’ll be killing off largely their own supporters, and leaving Labour’s supporters largely intact then Paul?
Every cloud has a silver lining then. Dreadful thing to say I know, and there are of course plenty of non Tory supporting older people (my own parents for a start,and my partner) who may well suffer or die from such an approach.
Gallows humour I suppose. Difficult to avoid it these days I’m afraid. I suppose I should try to be optimistic. Maybe good can come from this crisis, and governments (yes, even Johnson’s pack of fools and knaves) worldwide will realise the truth of MMT.
A bit of gallows humour is a perfectly human defense mechanism in the face of government ineptitude and mendacity. It is truly remarkable and reprehensible on its part that government is being forced to follow on from the initial efforts of sports associations, many businesses and much of the entertainment industry to respond more appropriately to this pandemic. But it’s all too little and too late.
And you’ll wait a long time for them to admit the truth of MMT. Most of them have known it all alomg, but wilfully chose not to apply so as to advance the interests of the powerful and the wealthy – and at the expense of the vast majority of ordinary citizens.
It’s also unfortunate that it’s taking Labour 4 months to elect a leader. We’ve never in a long time had such a need for a forceful, effective opposition in Parliament.
”I am not, overall, convinced by universal basic incomes.” (March 2020)
”I welcome the idea.
It is a step towards a universal basic income.” (March 2019)
https://www.taxresearch.org.uk/Blog/2019/03/11/a-step-towards-a-universal-basic-income/
What has lead you to change your mind about UBI over the last year?
In normal times (and these aren’t normal) I suspect a job guarantee plus well targeted social security represents a more balanced approach
Job guarantee only makes sense for 18-24 year olds, where it commits government/communities to guarantee every young person gets skills and a start in life.
Beyond that job guarantee is just wage slavery, and worse still, one administered by our incompetent governments. Let me know how that works out for you, compared to unleashing the power of individual and community enterprise, cooperatives, and the circular economy. Just to give a simple example, UBI would lead to the biggest rise in small business start ups in history.
Finally remember that although targeting social benefits sounds logical (to target limited resources on the most needy) it inevitably creates poverty traps as increasing work means loss of benefits at upto 80% marginal tax rates. Far better to give everyone the security of UBI knowing that anything they earn goes on top (but is immediately taxed at basic rate with no personal allowances).
My most fervant hope is that a dose of emergency UBI now will dispel all the myths and prejudice surrounding UBI and open our eyes to the huge wasted potential of our communities. If that happens, some good could yet come from this nightmare virus.
I think that you do need to read more about the job guarantee
Even those who were committed to UBI now seem to have doubts
It was the Conservative Party under the leadership of the Earl of Liverpool who implemented the deflation biased Gold Standard in 1821. This along with the introduction of the Workhouse in 1834 had a bearing on the treatment of starving Irish people. Tories have been destroying countries for a very long time!
Will HMRC / companies house have to give companies longer to submit their accounts?
Surely auditors are going to find it more difficult to do an audit in this environment.
Will this impact on investors willingness to invest?
What about other regulatory deadlines – will these be relaxed?
You get the feeling that the ramifications of this aren’t fully realised yet?
Almost none of the ramifications of this are appreciated as yet
Take a straightforward, and rather personal example right now. My son in the upper sixth form is quite worried that he may not be able to take his A-levels. I think he has good reason for that concern. But, he wants to go to university. And they, no doubt will want him to go. So what will happen? Will he go provisionally? Will he get a grade based upon his teachers prediction? Will he have to resit at sometime in the future and find out that he was not entitled to the place he got? No one knows.
It’s deliberate government policy to let the coronavirus rip through schools and universities in the hope this will build up immunity. What they haven’t thought about is how this will affect important exam results like “A” Levels and university exams. There will likely be chaos much of it engineered by a government out of its depth and unfit for purpose!
At my University I’ll be in meetings early this week where we will be discussing the possibile options for “creative” assessments this year, including simply allowing all first year and second year students to progress to the following year without taking exams. The rationale being (I guess) that those who might have failed this year will merely fail (or hopefully not) next year. Sadly, in my Faculty at least, that means a few medical students possibly progressing with inadequate knowledge of basic biomedical concepts…though perhaps with a great future as Government advisors? 🙁
I think that Policy is going to be widespread – the universities will want the revenue after all…
I note the last point 🙂
I wonder if the realisation will dawn that we’ve been taken for fools for decades. From Thatcher on successive governments have told us we have to balance the books, that we can’t spend more than we earn, that we’ve maxed out the credit card and so on while shrinking the State, cutting back on social spending – education, NHS, Social Care, police, prison & probation service etc etc – and that private enterprise is the answer, hence the sale of virtually all our heritage of public ownership such as water, fuel, council housing – because there’s only tax-payers money.
Anyone who’s worked in the public sector knows that there has been decades of cuts, efficiency saving, paring everything to the bone, reducing resilience, because there’s only tax-payers money.
Will the politicians stand up and say they were wrong, that it was all a horrendous mistake that the money was there all the time, as war showed, that they’re sorry for the misery they’ve caused to tens of thousands, for the thousands of excess premature deaths? No, of course not, even now, they seem more interested in protecting their backs and ensuring the rich don’t suffer, while the elderly and those with health problems will just have to be sacrificed for the greater good – and anyway, we don’t have the resilience to deal with a pandemic because everything has been cut back into the bone.
We need a revolution.
“We need a revolution.”
You’re not going to get one too many people failed by an education system that doesn’t teach analytical thinking let alone core economic and monetary system concepts. The truth appears to be regression back to the 19th century and all the social harm that took place in that era.
I think we have to put political ideology to one side. The Govt will obviously be advised by health experts and in that we need to place our trust. I have been told by people who work in this field that the authorities started planning for a pandemic back in 2010. I hope the Govt will provide financial support to those in need and to try and keep the economy moving. Though only time will tell. Obviously at this time a lot of people become “exports” in coronavirus, disaster planning, economics you name it and of course it or right to have an opinion. I do think divisive comment is unnecessary though.
This is so naive Peter
First advice is always political
Secondly, the 2010 plan was for flu, not coronavirus
They are not the same
For heaven’s sake, up your game
Rather than look back with infinite recrimination against others, and forward in fantasy to the taming of corruption by tax-reform, our need – known in part from time to time over 2,500 years, ever plainer from our 2008 stumble and with the scale of panic facing Corvid-19 – should be acknowledged simply as real democracy, simple enough for all to understand and trust, in agreed equal-partnership. Distracted by leading adventurers such as Putin and Trump and Xi Jinping, and now by the folly of Brexit and careless invitation of a new zoonosis, we are NOT well-placed for global transformation to avert imminent eco-catastrophe. Wildfire example is needed of representative government, for Money to be servant not master: personal income-shares (our votes in the market) equal from cradle-to-grave; businesses secure against inappropriate liabilities. The use of rents must be part of investment discretion, not part of private entitlement. Are we up for it, survival?
Those currently using income drawdown from pensions in a SIPP could have their pension pots almost wiped out in the coming months as a result of the stock market crash. When considering Universal Basic Income (or whatever the government chooses to call it) these pensioners should not be forgotten. Now is not a good time to be selling stocks and shares for income drawdown purposes and it could get much, much worse before it gets better.
1929-1932 crash in a chart
https://en.wikipedia.org/wiki/Wall_Street_Crash_of_1929#/media/File:Harga_Saham_Wall_Street_1929_-_1932_menjunam.png
Well said: “These people did not die for a good reason. They died because of government policy”.
Sad if it’s true …
How can those who extract vast wealth from our Common Wealth (= Central Bank creating money at request of government) at such a time as this have their gambling gains denied to them?
Many reporters say these people “make” wealth from their gambling – they make nothing constructive for society.
https://www.opendemocracy.net/en/oureconomy/its-the-viral-excesses-of-finance-that-are-to-blame-for-current-volatility-the-markets-should-pay-for-covid-19/
Seems like the government is only giving guidance at the moment rather than banning things to protect the insurance industry. Theatres can’t claim cancellation insurance because there is no government directive telling theatres to close. They will just go bust because no-one will attend the shows. If the government forced them to close then they would be able to claim on their insurance.
I wonder if it is the same for the travel industry?
This policy is illogical
The insurance sector can be underwritten
Those businesses cannot be
Seems the government instinct is to save the City of London not small business. After all, most of them have worked in the City at one time or another.
Right now I would agree with you
I am going to repeat this ad nausium
Forget “economics” and the current laws that underpin our current economic system
Everyone must have access to food and shelter
The government has to implement basic food rationing (including free distribution) and “stationary asset management”. i.e. no rents, no mortgage payments.
No matter how bad you think the situation is, we should prepare for much worse!
See my blog this morning
Watched Newsnight last night on BBC2.
There is starting to be a recognition by the political commentators, of the economic impacts of coronavirus and the actions that will need to be taken. Talking of the end of capitalism! Big State planning and distribution. (Mitt Romney suggesting that ever American gets $1,000 pay out from government). The perils of being a small business. Once the bankruptcys start flooding in and household names go under, then the debate about MMT or “Sovereign Money” will enter the public consciousness.
This has to be the moment that we restructure society so that we can tackle climate change!!!!
Coronavirus may be the wake up call humanity has needed.
I am no economist so forgive my niaivity but when I think of how our economies have been ordered up to now, I have been thinking a lot about how money is distributed. Those on minimum wage or thereabouts have a certain amount distributed to them, and as you head up the levels, so these amounts increase. And each level allows a person to establish (as tough as it is)a life for themselves.
Which takes us to where we are now. The longer it takes us to contain and eradicate this virus, the amount of money people have to source their needs disappears. Which takes me back to the idea of distribution. If people were given UBi right now, then they could sustain themselves. However we also need to think about the world that will have to be re built after this. With people at home , spending time with their families, creating local networks of support we may very well create the seeds of this new world. With UBI people may also be able to use this money to begin to create work for themselves. And that leads me back to the idea of how money is distributed.
If we go back to the method we have, distribution of money greased by consumption we are gonna get right back to where we were. Change how money is distributed and we change how we order our societies. Lend to banks to lend to businesses to create jobs and wealth etc works when you have a somewhat functioning economy.
But do societies have time for that model to play out?i don’t think so, but money in people’s hand right now would sustain them and remove some of their worries of the future. For sure the old model will be needed but I suspect people will make very different choices for themselves if UBi in some form were introduced.
The fragileness of the life we hold will cause us to want to live very differently. And therefore how the world has been ordered will be challenged and don’t think that how it was is a basis for how it should continue. As we come through this, UBi in some form could be used for people to establish new lives within the frame work of local support networks we will create to support each other through this.
I think how money gets distributed is one of the key changes that has to happen if we are to have anything different afterwards.
But I am no economist, truth be told I am just one of those guys who hands you your food when you order from one of the food delivery platforms.
Last noted
Pretty important then
I hope the job survives….