When I was asked by Jeremy Vine on Radio 2 last week what my reaction to the budget was I said that I thought it a complete disaster because it completely failed to comprehend the scale of the issue facing the country as a result of coronavirus.
It transpires that I was right. According to Politics Home this morning:
It's less than a week since Rishi Sunak delivered his first Budget, containing £30bn-worth of measures to help the economy cope with the outbreak, but already they seem hopelessly out of date. The Chancellor is said to be preparing a fresh bailout, with George Osborne last night urging the Government to underwrite hundreds of billions of pounds-worth of bank loans to firms struggling to cope with the sudden drop-off in their income.
Both economically and politically, it seems, the UK will be a very different country when it finally emerges from the crisis.
Martin Sandbu, who is, in my opinion, one of the best economic commentators in the UK, has this to say this morning:
As the enormity of Covid-19's probable economic fallout dawns, governments should prepare themselves for equally yawning gaps in public finances. That should not be a cause for alarm. On the contrary, unless government deficits widen to a scale unprecedented even in the global financial crisis then policy may well be seen to have failed to do its job.
And as he concluded:
The containment of the virus is already turning our everyday life upside down. The necessary fiscal remedy may well do the same to many received economic ideas.
He is right.
What we are facing is unprecedented economic disruption. In the very short term whilst we try to halt the spread of coronavirus (which was already too late for me) there are going to be massive supply-side shocks within he economy: temporary closing of businesses, schools and much more will disrupt many supply lines and make us focus solely on those that are by far the most important, such as food, power, water, health care, waste disposal, critical transport and so on. We cannot do without them. Everything else is optional in the short term.
But this is something that can be worked around: once the shock of how to work in this way has settled and minds begin to address the issue how to go forward will become more apparent: supply-side issues will begin to be sorted, even if large numbers of people are ill (and maybe, just maybe, that can be averted).
As important though is the demand side issue. In fact, it may be much more significant. People with no certainty as to future income - and that describes a majority of households in the UK right now - will stop spending. That's what always happens. Cars, white goods, holidays, and all the other 'extras' in life will see demand plummet: car sales in China virtually stopped in February, for example. And this matters because the knock-on effect on incomes is enormous. And this will be where the damage is done to the economy.
This is why Rishi Sunak needs to be bac at the Dispatch Box as soon as possible - as I predicted he would need to be last week.
And this is why his measures should include:
a) Underwriting banks
b) Underwriting insurance companies
c) Bank loan repayment holidays
d) Rent payment holidays
e) Tax payment holidays
f) A VAT cut
g) A universal basic income
h) Rationing
i) Price controls
Each can be elaborated, of course.
And let's be clear: this is not Keynesian: the claim that we'll all be Keynesian now will be heard, but Keynes' relationship with deficit spending was complex, and (to be candid) he did not and could not have comprehended the type of situation we're now in with the type of economy we now have.
This is modern monetary theory in action. All ideas have their time. The world has just realised that the idea that money can be created out of thin air for the public good, and that using that ability to keep people at work is a far more important objective than balancing books, has arrived. There aren't many modern monetary theorists in the world but they're very badly needed right now to explain that this is the only sane route down which we can now travel.
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we try to halt the spread of coronavirus (which was already too late for me)
Have you caught coronavirus?..sorry to hear
I seem to have it, yes
Day 5 and seems a bit better today
For me it’s been a heavy and feverish flu without any cold-like symptoms
Looking ahead, our biggest challenge will be reinforcing and reminding ourselves exactly how powerful the central banks of sovereign currency producing nations are at times like this and how that power can be used for the good of everyone.
Again, it will be about the struggle to not forget this moment. I can still see us reverting back to austerity when this is all over so that we can ‘pay for it’.
We need to keep our eyes peeled for this. Honestly – they will try it on again. Be warned.
This all resonates with the work on the concept of the Foundational Economy by the CRESC Manchester Capitalism group at Manchester University.
Good group
Glad to hear you’re feeling a bit better.
I see NZ has announced a Coronavirus package of 4% of GPD. Might not be enough, but seems a LOT (nearly 3 times?) more than here in the UK (or have I got the UK figure wrong?).
I couldn’t find your pre-recorded piece for the John Beattie show – was it aired?
I do not know…
I amy have missed it, because I did not hear the whole programme, but the immediate Government news was of such import that it took over the whole news programme; I certainly didn’t hear it.
Glad to hear you seem on the mend, Richard.
I think it got lost…
Shame…
You are probably right that Rishi Sunak will have his city slicker friends in the City in mind when he announces new measures rather than households who will be most affected who rely on the gig/precariat/uber type of employment. Introduction of UBI in the short term is probably impossible. Unless Sunak can sanction immediate emergency Universal Credit for all households affected and bring forward immediate payments and scrap the 5 week waiting rule, millions will be in dire straights.
They will be…the supermarkets are now saying staff with children off school will go unpaid….
Time to nationalise the supermarkets?
I am not sure why you would want to do that
Universal basic income will not suffice to drive the measures needed for our survival and prosperity. Understanding has to be shared that inequality and insecurity of income-shares act to drive corruption and collective ruin. Need across the world is for real equal-partnership democracy, conscience liberated across the old political spectrum to drive our shared agenda. Our species is in danger of wilfully ‘losing our place’ in a cosmos that is not just ‘potentially benign’ but that has meaning ONLY AS ‘actually benign’, to be understood as ‘pure gift’ for ‘such as us’. In receipt of more than ‘viable consciousness’, we share awareness and appreciation of the highest imaginable faculties, sense and purpose guided by Reason and Care. Our will to survive is matched at heart by our will to love, against unreason and uncaring to honour the context of Immanent Goodwill, transcendent of all traditions of race and religion and politics. It is time for us to CHOOSE, ‘friend or foe’: partnership for life, or collective self-extinction. For Earth a planetary tipping-point is close: neglecting Reason and Care we will leave our children to the evolutionary default of ‘Natural Selection’.