The making of an economic crisis

The UK’s Office for Budget Responsibility (OBR) has offered a grim projection of a one-third fall in output in the April to June period. Even without a second Covid-19 wave precipitating another government shutdown later in the year, the OBR anticipated a full-year contraction of about 13 per cent of national output, worse than anything in recorded history. Some economists speculated this scale of collapse could be greater than any since the Great Frost of 1709 (though, of course, no one was measuring anything like gross domestic product then). This shows how unprecedented this government-determined recession really is.

However, at a Downing Street briefing last week, Rishi Sunak, the chancellor of the exchequer, said something that was even more disturbing and, ultimately, economically damaging. Acknowledging the ‘tough times’ flagged up by the OBR, Sunak sought to offer some comfort: ‘But we came into this crisis with a fundamentally sound economy.’ On the back of this he went on to insist that the economy will ‘bounce back’.

The great danger of this false portrayal of the past is that today’s self-imposed and brutal recession could be extended into a self-imposed and much more vicious depression than we have experienced up until now. This is not inevitable.

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After the pandemic: whither capitalism?

To understand what will happen to capitalism after this crisis, one needs to understand capitalism before it.

One of the catchphrases of the pandemic so far is that ‘crises change everything’. Of course, lots will change because of the precipitous economic disruption of the shutdown. Thousands of smaller businesses are already going under and may not return, and this could rise to hundreds of thousands unless the government acts immediately to deliver on its business-support pledges. If the government fails to support businesses and workers, in the same way it has been failing with virus testing and health workers’ protective equipment, millions of individuals and families will endure great hardship. Many may not get their old jobs back. Over the medium term, this can be a bad or a good change, depending on the quantity and especially the quality of new post-recession job opportunities.

However, despite the changes brought about by the economic dislocations, at this stage it is likely that much economic policymaking from the past will endure. This is because crises tend to change things only to the extent to which they draw extant socio-economic features to the surface and speed up pre-existing trends.

Read the full articel here.

If another crash comes, don’t blame coronavirus

Institutions are starting to draw attention to the potential economic effects of the coronavirus outbreak. However Covid-19 is not the cause of our economic malaise. Forecasters should be careful in presenting new economic releases on coronavirus and now allow this health matter to become an occasion for economic scaremongering.

Playing up the economic costs of Covid-19 could exacerbate fearful responses, as well as distract from the much longer-lasting sources of economic sickliness. Global growth and, especially, advanced-economy growth are already dismal, and have been for many years. Forecasts for this year were already pretty downbeat before most people were aware of the word coronavirus. The danger is that this acute health disease gets blamed for our economic troubles, while the chronic economic disease remains undiagnosed and untreated.

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The crash 10 years on

The most telling contemporary observation about the ‘worst financial crisis in global history’ (to quote Ben Bernanke, who was chair of the US Federal Reserve when the crash hit in 2008) is that its causes are unresolved. It is true that the financial crash brought about a recession 10 years ago, but it did not trigger the fundamental weakness of the real economy. Slowing productivity growth across the mature economies can be traced back to the early 1970s. It was from that decay within production that the rot spread, gradually, unevenly, but steadfastly. The financial crash was simply one of this decay’s most serious manifestations.

Despite the shock felt in 2008, it is striking how little has changed in economic terms since then.

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