Ironically, just as the “democratic socialist” Bernie Sanders has suspended his presidential campaign in the United States, many of his policy proposals are becoming necessary around the world.
Social-distancing measures to mitigate the COVID-19 pandemic have disrupted production and household income streams alike. But the effectiveness of social distancing could be undermined by workers who lack proper health insurance, adequate sick pay, unemployment compensation, or other forms of income support or savings. These individuals will feel that they have no choice but to keep working, despite the health risks. Universal health insurance looks like the inevitable outcome, even in the US, where Sanders, virtually alone among national politicians, has advocated it for decades.
At the same time, the original supply and demand shocks – to labor and household consumption, respectively – from the COVID-19 crisis are being reinforced by the breakdown of global, national, regional, and local supply chains. And all of these real-economy shocks are causing disruptions in the financial system, too.
Under these conditions, central banks have a critical role to play in preventing disorderly financial markets from adding to the strain felt by non-financial companies and households. At a minimum, central banks must step in to ensure ample liquidity in key markets, including those for government debt, commercial paper, and key asset-backed securities such as residential and commercial mortgages.
But, equally important, central banks must ensure that liquidity for households and corporations does not dry up because of self-fulfilling, fear-driven withdrawals. Where appropriate, they can provide monetary financing for fiscal stimulus (helicopter money), so that governments that otherwise might be constrained by sovereign-bond markets do not have their hands tied.
That said, central banks are not the appropriate institutions to address business-revenue shortfalls and the risk of corporate insolvencies, or household-income disruptions and the associated problems in servicing mortgage, consumer, and student debt. True, central banks can carry some of the load temporarily, by purchasing high-yield corporate debt and low-grade commercial paper. But the big job of preventing an economic disaster invariably rests with fiscal authorities.
In the case of the COVID-19 crisis, public funding and mandates are needed to ensure that everyone can get tested expeditiously for the coronavirus. Global cooperation can play an important role here, given the imperfectly synchronized nature of national outbreaks. But, ultimately, all coronavirus-related treatment (including hospitalization) will need to be covered by the state, and only national governments can marshal funding on that scale.
Likewise, the state will also need to provide full compensation for workers who lose income as a result of the crisis. To maintain aggregate demand, governments could introduce a temporary universal basic income, whereby every adult receives a periodic cash transfer for as long as the crisis lasts. Even the US under President Donald Trump has blundered toward this obvious palliative measure, by including in its recent $2.1 trillion rescue package a disbursement of $1,200 for every adult earning less than $75,000 per year.
But even with government-provided income support, companies are still likely to experience dramatic revenue shortfalls, owing to crisis-related disruptions to the labor force, domestic and external demand, and supply chains at all levels. Here, the state could step in as a buyer of last resort, or it could provide credit or credit guarantees to financially distressed companies. Such credit could be converted into equity, either immediately or once the crisis is over, in the form of non-voting preference shares, thereby impeding the slide into a centrally planned economy.
There should be no restrictions on eligibility for the various forms of financial support outlined here. Large corporations are just as likely as small- and medium-size enterprises, the self-employed, or gig workers to be affected by the demand shortfall and supply-chains disruptions. And though they may be able to tide themselves over for a while – owing to their superior access to bank lending and debt markets – they cannot hold out forever. Given the build-up of non-financial corporate debt before the pandemic, we could easily see a wave of corporate defaults and insolvencies in the absence of state intervention.
Banks and non-bank financial intermediaries did not start the crisis this time, but they will inevitably become a part of it and will also become candidates for state rescues and bailouts as the asset side of their balance sheets deteriorates. And command methods familiar from wartime market economies and centrally planned economies – think of Trump’s invocation of the Defense Production Act to force General Motors and 3M to produce critical supplies – could well outlive the crisis.
Finally, the new socialism will also have an international dimension. Italy, for example, will need support from the European Central Bank or the European Stability Mechanism, or else through the issuance of eurozone coronavirus bonds. Among emerging and developing economies, external debt markets are already constraining the ability of many to provide fiscal support. Addressing these limitations with more foreign aid from advanced economies – including a targeted increase in the International Monetary Fund’s Special Drawing Rights – would be the morally correct and economically sound response.
As the trajectory of the COVID-19 crisis indicates, capitalist market economies will have to give way, at least temporarily, to an improvised form of socialism aimed at restoring income flows for households and revenue flows for companies. We will then see whether the consequences of this experiment with socialism last well beyond the end of the pandemic.
Willem H. Buiter, a former chief economist at Citigroup, is a visiting professor at Columbia University. This content is © Project Syndicate, 2020, and is here with permission.
67 Comments
I agree with doing something and it does seem to have a direct and good effect, I've always been a socialist at heart.
I'm just amazed how quick previously highly profitable and staunchly free market firms are to put their hand out and even more so for likes of the above.
If previously? how many % of those income goes to private & commercial landlords? - the current wage subsidy, goes direct to those landlords.
Any percentage of previous income from those essential workers that goes direct to landlords? the same percentage goes direct to the Landlords.. as they are the silent beneficiary of this 'Essential Services' NZ unsung heroes. Thank you, we all owe this to you. Govt, shall give further reprieve measures to shine further to this critical services sector.
Why does a professed democracy like NZ tolerate the existence of lobbyists.
The conversations between MPs and lobbyists take place behind closed doors; this would appear to fly in the face of democratic principles.
Can anybody justify the existence of lobbyists in a democracy?
It seems to me that the MPs enjoy the free lunches, but how does the electorate benefit?
I read somewhere where either Winston Peters or Shane Jones, Winston Peters I think, hobnobs with the big food processors Talley's owners.
Points which unfortunately ring true. My take would be that this undesirable and distortional element in our politics started to hit the high notes with Muldoon and his cronies, Trotter, Davis, Cushing et al, even perhaps Bob Jones was want to twist an ear if he could. The so called Business Roundtable at that time hardly consisted of the shining knights of the chivalrous type era, in my opinion.
Breaking News: we have now officially become a Socialist state whether we like it or not:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
I suppose a Social Democracy would be the correct term.
German virologists now say the Covid fatality rate is likely to be around 0.37%. Closer to the 1967 Asian Flu than the 1918 flu pandemic. Hidden agenda anyone?
I think there is a hidden agenda without any doubt. We’ve destroyed the global economy for less than 20% of the annual number of flu deaths every year. The media and govts have amplified this way beyond where it should be. The socialists are celebrating the new welfare extravaganza (adding $10k of debt for every person in NZ), even as the western economies implode. Confiscate all the wealth of the 1% and it won’t fund govt for a year. What then? 20%+ unemployment, a nation of beneficiaries and dramatically falling living standards for the average person in the future. Socialism has never succeeded anywhere and it always leads to individualism and corruption. However, with govts now between 30-50% of GDP, the cry will go out for it to go higher...50-60% of GDP. The masses who are dreaming of socialism will probably get their wish...they just won’t like the end result.
Take out the word roaring, and you’d be near the mark. The world’s worst mass murderers have all been statists, which is a word I prefer to socialists — it’s more about state control than underlying economic philosophy. Trying to think of a liberal free marketer to add to Hitler, Stalin, Mao, Pol Pot.... But I’m not a fan of rampant globalisation. Moderation in all things - something those afore mentioned gents should have been mindful of. As someone else on this forum said, common sense and personal responsibility would have meant a much less stringent lockdown.
Peter Cresswell agrees....Capitalism is the wealth generator which will repay the debt we're busy running up to tide us over the WuFlu Kerfuffle.....
Funny how the narrative is skewed when we talk about cures, but we never question the holy banks. It's modern day banking that made a run of the mill Flu 3.0 turn into an absolute economic and social catastrophe, from the lending into unproductive asset bubbles, to artificially low interest rates for years to defend said bubbles, and stock markets that have had little to do with real world considerations see Wall Street in the last 2 weeks (30% up when 16 million lost their jobs, wut?). Banks are the real virus. Slowly bleeding the life out of the economy, and these financial measures to strengthen banks only serves to undermine the purchasing power of the normal people, and devalue the money that people earn every week. For what? To maintain a status quo where the managers of society peddle fictitious imaginary 'currencies' leveraged off the hard productive work of the people. Why should we stand for our value creation being absorbed into the profits of those who do nothing but charge a fee for debt? Banking should be tied to charities, any profit earned reinvested into the economies where the profit was taken, and solely for social good, eg ROADS and VENTILATORS for example. The fact it is left to the future taxpayers to bail out financial institutions which have done nothing but rape the real economy for far too long shows how entrained we are to thinking modern day banking is a social activity of worthy mention. There will come a day when people will refuse to equate productivity with the degraded products issued banks. Money, what should have been a mere medium of exchange has now become THE asset to own, in which to make more money through markets thoroughly socialized to reduce risk to zero. The Fed is buying junk stocks. We just became Japan 30 years ago.
The repetition ad nauseum of this mathematical illiteracy on a finance website is amazing. The numbers are not exponentially higher than they are *because of* the shutdown/social distancing. Anyone can work this out from a casual comparison of the stats between countries with strict social distancing and those without. But don't let math get in the way of a good libertarian conspiracy theory.
BS 0.37% is well off the mark
"Also with nearly 20,000 deaths, the United States' mortality rate is close to 4 per cent. UK has a 12 per cent mortality rate, Belgium and Netherlands sit around 11 per cent, France and Spain around 10 per cent, China is at 4 per cent and Australia is close to 1 per cent.
While Germany has recorded more than 122,00 cases - not far behind Italy's 147,000 - just 2767 people have died. That's a mortality rate of 2.3 per cent."
So why is there such a big difference in mortality rates in different countries?"
https://www.stuff.co.nz/national/health/coronavirus/120974464/coronavir…
If the average person was smart enough this could have been managed at an individual level and wouldn't need that much government intervention apart from closing the boarders which still did not happen fast enough anyway. The real problem is that the average person is both stupid and selfish which is a dangerous combination in a Pandemic. We got prepped for this and so far have not left the house since the start of the lockdown and can still make it to the end of the current lockdown if required.
Everyone agrees that the government needs to help people who have been financially harmed by the national effort to contain COVID19. But few understand that the cost of that help will ultimately be paid by those who can least afford it. It's inflation that's about to go viral which will be the real killer.
There are a couple of issues here. Firstly, the virus - a Chinese card trick that has achieved more than they (CCP) ever dreamed it would. It's no coincidence that China's only Level 4 Laboratory is based in Wuhan. What they didn't reckon on was the west getting together (read the Italian story again) to fight a common enemy, and even slagging Trump (such a tiresome line these days) will not stop the free world coming back stronger.
Secondly, the economy, or as Jacinda likes to call it, the NZ state economy, is in a similar pool of water to many other nations. We're all govt beneficiaries now whether we like it or not. The post made above about the virus driven situation, however, is correct. Even through we were stretched economically before that, there's no doubt in my mind that the virus disrupted everything (and I mean everything) in a way a recession could only dream about. The cure, however, is pure socialism. Will the cure will worse than the disease? I think so, without doubt. They're talking of the Great Depression in the 1930's as a comparison, which combined with the Spanish Flu parallels, could turn this next year or two into a real doozy. The truth is, nobody knows what will come about when looking at the big picture. The small picture is a chaos of business failures, grounding those people who take on the risks to create companies that employ other folk to work in & pay their taxes to the govt. These are the people that will create a new nation to be proud of once again, albeit with a slightly different set of rules. These are the workers, the doers, the risk takers, yes employers & creators that will pay for the socialist govt to work its wicked ways to dumb us all down to their level. Sadly.
https://www.nationalreview.com/the-morning-jolt/chinas-devastating-lies/
https://economictimes.indiatimes.com/magazines/panache/is-covid-19-a-bi…
https://edition.cnn.com/2020/04/08/politics/us-intelligence-report-chin…
https://foreignpolicy.com/2020/04/06/chinese-coronavirus-spread-worldwi…
Many countries survival depends on China like NZ so will be in Dilemma to go with the world or to ignore and support China.
Wait and Watch
I think UBI isn't a first choice option in NZ. Better to see Govt assistance for services of housing, work, child care, health care, regional development. Help people find work, buy a house, etc.
"Services" rather than straight out "cash" is the long term pay off strategy.
Why? That seems a pick winners policy to me, or perhaps more a throw money at the loudest squealing.
Im still more inclined to see things crash and wanting the financial system as it is sweep over a Cliff and starting again with and actual service sector, non-parasite type.
I see Dalio thinks were heading into a depression:
https://www.cnbc.com/2020/04/09/ray-dalio-predicts-coronavirus-depressi…
I've read his book Principles and some of the 'Big Debt Crises' - he's spent most of his life looking at this stuff - causes and outcomes. Worth taking note.
I had an interesting conversation with my sister in the US today. She was talking about the $1,200 payment that every American taxpayer is supposed to get. Her point is she didn't need it and there would be lots of Americans like her that didn't need it. She thinks small businesses are those that will most need help and so went online searching for a charity/organisation set up to help small businesses in order to donate her $1,200 to it.
She found no such organisation or charity.
I said to her, just give the money to a small business in your local neighbourhood. She replied, "Oh, you mean give it to just one business?" And I said, yes, it may not be enough to save them, but I'm sure it would help.
I could tell she won't do that. Instead, she wanted to donate to some organisation that could help more than one business. She just couldn't 'get' that her $1,200 was always only going to be $1,200, whether it went via an intermediary or not. She couldn't think local, or on a small scale - it's as if she wanted an intermediary that would allow her to 'feel' as if she had helped the entire SME sector in the US.
Why I mention this here is that my sister is a major defender of US conservatism/capitalism - i.e., the individual needs to be solely responsible for themselves. But she couldn't bring herself to give her $1,200 to an individual - to a real person struggling to make it in the real world of being a small business owner in the US. Instead she sought a centralized-type of bureaucratic organisation to distribute to some nameless/faceless unknowns for her.
I thought that odd/interesting. She is a capitalist who sought out a socialist form of distribution when it came down to giving money away.
I mentioned this to my husband, and immediately he said of course she should give it to someone local - and that he'd have given the money to his barber, or to his favourite bakery in our suburb. Easy as. The last thing he'd do is give it to some nameless/faceless organisation.
I managed a company in the 90s after having lost my job in the 87 crash it was tough for 3 or 4 years take away from it this will be a game changer for a generation as to how they progress financially and politically. My experiences from that time made me more conservative in both I can understand why people having gone through the 30s were affected . It may be that this will bring real change and serious participation from a generation who regards politics as distant and pointless. Many people like Kate's sister will be challenged if they are affected severely financially to look again at their values . Nothing focuses one's mind like being in survival mode financially and trying to keep your house or property. That was my experience anyway
That is the one key word: Economic - now, Saudi economy heavy reliance on oil, their social intervention will be different. NZ with what sort of economy?..Finance, Insurance, Real Estate - fill the blanks there as how to ?
Let me re-phrase, imagine if one country/region almost 100% depends on tourism - now, what sort of 'socialist intervention need to be done there?' - when capital/people movement to visit will be in severe restrictions years ahead? - cheaper remote visit/'virtual tourism'? - C'mon please provide a country future well being as how to socialise the method of current 'intervention' for this ponzi wealth industry.. RE/properties.
Lots. My guess is, if he gets a second term, he'll socialize medicine. Not a re-run of ObamaCare as that was just a pandering to the private sector and insurance companies.
He's been very critical of the medical insurance industry generally. He said recently during the crisis that the industry had agreed to drop co-pay with respect to coronavirus treatment. They came out the next day, saying, no we said we'd drop co-pay with respect to coronavirus testing, not treatment.
Early on in his administration he suggested big-pharma needed far-reaching changes to regulation - he gave the example that, Government through it's Medicare/Medicaid programs paid more for a bottle of aspirin than he did when going to the drug store himself (they have some stupid law there that government cannot negotiate a price - hence why big-pharma wanted NZ to get rid of Pharmac under the TPPA).
I'm guessing the reason the ICUs in NYC are so predominantly treating African Americans is because those in the US that don't have medical insurance, must by law be treated if they go to an emergency room (and Government then pays out of Medicaid). Whereas if you have insurance, and you seek medical treatment and become hospitalised - you've got a largely unaffordable co-pay insurance bill that requires you to sell assets and will potentially bankrupt you. As the article explaining it suggests, "Heaven forbid they miss a chance to bankrupt people";
https://www.commondreams.org/news/2020/03/12/insurance-industry-correct…
As the NZ paramedic said who is working in NYC (she was on TVOne news tonight), lots of people are choosing to die in their homes and the ambulance service is called and takes them straight to a refrigerated container. They don't get counted as COVID deaths, because in most cases, they were never tested.
My son there has medical insurance and is still working over there at the moment, but the first sign of a sniffle and he's on the next plane out of LAX. No way will he risk bankruptcy, or even a medical debt. He works as an apartment leasing agent, and as he has to do credit checks on all applications, he knows first hand how many in their population have crippling medical debts.
Here is some useful data:
European Monitoring of Excess Mortality
Bookmark and watch over the coming months.
Michael Reddell skewers the RBNZ's own local response - actually, the lackadaisical nature of it and the utter lack of transparency by way of technical advice papers and other doco.
RTWT and weep.
Im old enough to remember living, talking with my Grandparents who lived through the depression, watched their 14 year old son, my uncle, run off to the war to be torpedoed at the age of 16 on the Leander in the Coral sea, he survived but many of his mates died in the war. They were scarred for life by this and always had a healthy fear of debt, bought something when they could afford it, ability to live frugally and be happy with what they had plus were incredibly generous to others. If you keep debt low, or zero, and realize that anything is possible in this highly leveraged mad economic world you will survive. Read about Bill Gates and his outlook on debt with Microsoft - he would be laughed out of finance departments but hes done pretty well.
The best thing to come out of this maybe people will start to realize this has all been done before and will learn from it in the future - somehow I doubt it.
NZ public & current govt, would love to watch this - during the lock-down period:
https://www.youtube.com/watch?v=MGrBCtOt4Qs
https://www.scoop.co.nz/stories/HL1507/S00101/the-fire-economy-new-zeal…
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