On the morning of 18 March, Andrew Ross Sorkin’s indispensable Dealbook blog asked ‘what a “wartime” economy looks like’, pointing to the roughly US$2.5 billion in stimulus spending that the United States, the UK, France, Germany and Spain had offered as of yesterday; warning that it might not be enough; and calling the ‘spending plans unlike anything seen during peacetime’.
Actually he’s not quite correct on that last point. The Bank of England pointed out in 2009 that in response to the financial crisis, the US and UK governments quickly mobilised an estimated US$14 trillion in cash and credit guarantees to rescue financial institutions, ‘equivalent to about 50% of annual GDP in those economies, although that does not equate to losses as in some cases these obligations were offset by holdings of assets’. It is becoming clearer by the day that a commitment of that magnitude, if not larger, will be needed to avoid a depression. And the blog points out that during the Second World War, the UK and the US ran budget deficits equivalent to more than a fifth of their respective GDPs. By 20 March, The Economist was citing a figure of US$7.4 trillion (about 23 percent of GDP) as the combined commitment from the US, the UK, Germany, France and Italy; warning that conventional fiscal policy is likely to have limited impact; and observing that ‘new financial tools need to be deployed, and fast’. An optimistic view is that Green New Deals may achieve a breadth of political support unimaginable two weeks ago.
On the other hand, Toronto’s Globe and Mail offered an important commentary pointing out that many people already living paycheque to paycheque and now facing the probability of job losses cannot afford to stockpile a fortnight’s worth of food and will probably have trouble keeping a roof over their heads – an obvious point that seems to have escaped most of the mainstream media. Both the New York Times, whose epidemic coverage is now out from behind its paywall, and the Guardian offered ominous frontline accounts calling into question the National Health Service’s ability to cope with increased caseloads after a decade of austerity-induced fragility. Similar accounts are now emerging from (among other places) the United States and Italy. And outspoken Lancet editor Richard Horton excoriated the British response as ‘a collective failure among politicians and perhaps even government experts to recognise the signals’ emanating from China and India. He concluded that ‘when we have suppressed this epidemic, when life returns to some semblance of normality, difficult questions will have to be asked and answered’.
We must now confront the possibility that, if economic policy is mismanaged and some health services collapse, that return might take, not a few years, but a generation.
This post was updated on 20 March