Tuesday 17 March 2020

Saving Capital from Coronavirus

Two budgets in the space of a week? This Coronavirus is really spoiling us. Well, spoiling the markets because Rishi Sunak's latest package of measures gently clasped the invisible hand and offered it smooth, calming words to dampen down the animal passions. And just like that, the markets reciprocated his therapeutic whispers with the FTSE up by almost three per cent. Not bad seeing this week has was quaking at the terrors not seen since the dog days of 2008. Nevertheless what's good for the capitalist goose isn't always good for the proletarian gander, and "ordinary" people are still waiting for help.

Sunak unveiled a loans package of £330bn for struggling business, with a big hint that the airline industry can expect some special measures in the coming days. Sounds like Branson's special pleading helped. Likewise, to clear up the confusion surrounding Johnson's advice to people to stay away from restaurants, bars, and theatres, he said insurance companies would be expected pay out for businesses forced to close thanks to these recommendations. There is also to be a year-long business rate holiday, and additional £25k payments for smaller enterprises.

Okay, so why loans? From the standpoint of book keeping, as Richard Murphy notes, monies doled out appears as assets on the balance sheet, whereas grants would go on the deficit. No wonder the markets were happy. We might consider habit too. The model of financial fundamentalism Sunak is desperately trying to preserve demands the whip hand of debt, and for long-term watchers of such things Gordon Brown's capitalisation and part-nationalisation of the banking sector did recoup returns to the Treasury. Sunak is learning from The Master. And you have to think about the politics too. Four years from now the Tories have a handy bribe to offer the ranks of small business owners - vote for us and we'll write off your debt.

There's another difficulty when it comes to debt, and why it's a bad way of preserving employment. Suppose a small catering business applies for the Sunak whack to tide them over for six months. Why is it in the company's interest to take on more debt to keep their handful of employees in a salary, when the more sensible approach would be to limit the loan for essential overheads and the owner's living and lay off the staff for the duration of the crisis, ensuring social security picks up the tab? This loan scheme is primarily not about preserving jobs, but preserving capital.

There's a bit of a dodge when it comes to one of the few plebeian offerings in this fool's gold package. There will be mortgage relief for up to three months for anyone infected by Coronavirus. This would certainly be a marginal help for some, but again there are problems. When the majority of people who are sick now haven't been tested and the public are told to stay away from GPs and A&Es, by the time the worst of Coronavirus is over only a small number of people are going to have a note from the doctor for their aches and pains. How can anyone applying for relief prove they were ill? And what of those with multiple properties? As Jade Azim observes, what's to stop a Coronavirus-inflicted landlord claiming mortgage relief on all their properties while happily hoovering up the rents?

Sunak's second budget at least mentioned ordinary workers, and he said he was sitting down with businesses and trade unions to see what can be done for everyone else. Naturally, we await his measures with some interest. Yet what we heard is entirely consistent with his first budget. Eye-catching and gargantuan piles of money, but nothing on bettering the lot of working people. Capital came first, the workers an afterthought. If you was feeling generous, you might say breaking with the governance habits of the last 40 years takes some adjusting. But when you have John Redwood calling for targeted measures to keep people in work and the editor of Conservative Home waxing like a demented Keynesian about negative multipliers and criticising the chancellor for not going far enough, dogma is not the root of today's disappointment.

As ever, the preservation of Sunak's class and their system is the primary concern.

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1729torus said...

The Chinese government had no choice but to suppress Coronavirus because it was making people panic and start trying to undermine the system to protect themselves.

For the same reason, I believe Boris Johnson will have no choice but to introduce a lockdown before you start to see riots and protests spreading Coronavirus all over the place and suddenly you've lost control of the disease entirely. People aren't going to passively watch as thousands of sick people are turned away from hospitals each day and mass graves are being dug. You already have people refusing to send their kids to school and less than a hundred people have died.

The longer Boris puts it off, the more rampant Coronavirus will be, the more deaths, and the more painful and lengthy the lockdown will be.

Boffy said...

"The Chinese government had no choice but to suppress Coronavirus because it was making people panic and start trying to undermine the system to protect themselves."

China can't keep its society locked down forever despite it being a vicious totalitarian regime. As soon as the lock down ends, the virus will spread again amongst the rest of the 1 billion population who have no immunity against it, in the same way that a forest fire spreads again from a few embers into the bits of the forest that previously were not burned.

The only solution for China as with everywhere else, until such time as a vaccine is produced, will be to isolate the 20% of the population at risk of serious illness from it, and to allow a herd immunity to develop amongst the 80% of the population that suffer no serious consequences from it.

Lock downs that delay the spread provide no answer they only delay the inevitable, and thereby make the cost of dealing with the situation more difficult and ore costly. And, in doing so they increase deaths and ill health from other economic related causes.

Boffy said...

All of the additional borrowing whether by businesses, by businesses backed by government or by government directly itself, mean that interest rates are heading much higher, which is why asset prices are crashing.

All of the additional liquidity being put into circulation by the government giving cash handouts to households and to businesses, at the same time as dramatically curtailing production and supply can only lead to a Weimar style hyperinflation, as I have set out today.

The consequences of all that will mean far more deaths from these longer term economic consequences than COVID19 would cause at its worst. But, if the government would take the sensible course of ensuring that the 20% at actual risk from it were able to effectively self isolate, the number of deaths from it could be kept to only around those that occur from a bad year for seasonal flu.

Deviation From The Mean said...

We really need to get our heads around the idea that we are not actually living in a capitalist economy anymore. What we are living in is an open question, is it emergency communism, state capitalism, a hybrid of neo feudalism and communism? I am struggling to categorise what it is.

We will see a huge downturn in GDP terms but in a non capitalist economy it doesn’t mean the same thing. We will soon realise that not only does money produce nothing, but also most of what is produced is not strictly needed. So in this emergency communist system the key question isn’t can we take a GDP hit but can we plan production to keep the necessities supplied.

We are in the world of from each according to his ability (as long as that ability is within those categories of workers deemed essential) to each according to their need (provided supply chains can be maintained).

The question is, will capitalism ever emerge again and if so what will it look like? Make no mistake this is an earth shattering moment in human history, nothing will ever be the same after this. But please don't quote me on that in a couple of years :)