The Economic Consequences Of COVID 19

The economic consequences of the COVID 19 pandemic will be far-reaching. Jim Stanford writes:

It is increasingly clear that the economic fallout from the pandemic is also going to constitute an emergency. And it requires government to respond as urgently and powerfully in the economic sphere, as they are attempting for public health.

What needs to be done? Stanford suggests several interventions:

1. Immediate Mobilization of Resources to Protect Health: Obviously governments and health authorities must now throw every possible real resource into protecting health, as much as they can, including:

More staff at health facilities.
Alternate off-site or mobile testing capacities.
Home support for people quarantined or recovering at home.
Quick expansion of capital equipment (including buildings and equipment), as much as possible.

2. Income Protection for Workers: The pandemic has exposed a frightening and dangerous aspect of the new precarious labour market. Only about half of employed people now work in a "standard" full-time permanent job with benefits -- like sick leave. So when people are instructed to stay home from work to avoid spreading the virus, many incur a major and immediate financial loss. Unfortunately, that will compel some to ignore the health advice and keep working -- with catastrophic health consequences. This pandemic is reminding us that the wellbeing of everyone, depends on the wellbeing of everyone else. The short-sighted responses of some business leaders, complaining about the cost of sick leave and that workers "whine" or "fake" their conditions, is as morally repugnant as it is clinically destructive. (For a despicable example, see Howard Levitt's comments about workers imagining illness on CBC's The Current).

3. Debt Relief: Morneau and his colleagues moved quickly today to assure businesses that they can continue to access credit to maintain operations and stave off bankruptcy. There will likely be a need for more hands-on support for firms in many industries (including airlines and other transportation and tourism providers). It makes sense to keep businesses from going bankrupt at a time when unemployment is rising anyway, but those interventions need to learn from the mistakes of past rescues. Conditions must be attached to protect employees at these firms right through the crisis (like no layoffs), and to ensure that rescued companies are held to long-term performance requirements (including future Canadian production and employment). The memory of major banks and automakers that were bailed out at the public's expense in 2009, and then quickly returned to their bad old ways (speculative lending and industrial disinvestment, respectively) reminds us to leverage our support during times of crisis into long-run influence over their subsequent activities. The best approach in that regard is to take public equity stakes in these businesses as a condition of financial support (as some European countries did with banks and other major bailed-out businesses).

But, most importantly -- when this is over -- the economy will have to be reconstructed. And that presents an opportunity:

The traditional tools of stabilization (monetary and fiscal adjustments) are clearly not capable of addressing the scale of the problem. Monetary policy, indeed, has already lost most of its effectiveness: with interest rates near zero, and borrowers scared deeply about what lies ahead, the emergency interest rates cuts announced by the Bank of Canada this week will have virtually no impact on real economic activity in the coming year or longer. (It probably won't even reignite house price inflation, which has been its dominant "achievement" of late.)

And fiscal interventions will need to go far beyond counter-cyclical stabilization. Canada's economy will need to rely on public service, public investment and public entrepreneurship as its main "engines" of growth, to recover from the coming downturn, prepare for future health and environmental crises, and improve conditions in our communities. The abysmal failure of private business capital spending in recent years -- which has fallen by one-third as a share of GDP since the turn of the century, despite hugely expensive corporate tax cuts -- was already indicating a growing role for public investment to lead the way. Now, in this moment, it is laughable to imagine that private capital spending or exports will somehow lead the reconstruction of a national economy that will experience an unprecedented and scarring shock.

There is no shortage of urgent rebuilding required in our economy and our communities: sustainable transit, green energy, non-market housing, expanded public services (including aged care and early child education) and any number of other urgent priorities. The case for mobilizing those resources, under the leadership of governments and other public institutions, is compelling. We can put people to work, repair the damage of this crisis (and better prepare for the next one), and deliver valuable services. All we need is the willingness to imagine a different model of organizing and leading economic activity.

We are in a very trying situation. But, if we think carefully, we might make our nation better -- much better.

Image: Diply