Vinoth Ramachandra

Who Will Learn From Covid-19?

Posted on: April 27, 2020

One week before the Great Crash of October 1929- which precipitated the Great Depression- Irving Fisher of Yale University, perhaps the most distinguished US economist of his time, claimed that the American economy had attained a “permanently high plateau”. Three years later the national income had fallen by more than 50 per cent. No one, not a single economist, had seen it coming.

The usefulness of economics, observed that wittiest of economists, John Kenneth Galbraith, is that it provides employment for economists.

I gave the above example in my Blog post of 26 November 2011, in the aftermath of the so-called financial crisis of 2008-9. Nothing seems to have changed since. Will the Covid-19 crisis spell a similar return to “business as usual” on the part of politicians, bankers and economic “experts’; or will it lead to a radical overhaul of the world’s economic and financial systems and the shallow assumptions about human behaviour on which such systems have been built?

There is no doubt that the global spread of Covid-19 has exposed the lies, hypocrisies and fault-lines that run through many of our societies. If the virus had been confined to the non-Western world, it is unlikely to have become the #1 headline in the world’s media for days on end, as has been the case since first Europe, and then the US, became the epicentre of the pandemic. Just as a receding tide exposes the debris that we would rather not see, the virus has exposed the deep health and economic inequalities within rich nations, as well as between nations. Poor economies are on the brink of collapse. And it is the poor and vulnerable communities within the rich nations that have been disproportionately affected.

It was Franklin Roosevelt’s New Deal that lifted the American economy our of economic ruin following the Great Depression. This was a massive program of government investment in public works which put people back into work; social security for farmers and the unemployed; pension and housing schemes for the elderly; and financial reforms of Wall Street such as the Glass-Steagall Act which separated the operations of high-street banks from merchant houses (an Act that was repealed in 1999 as a result of financial lobbying).

When Bernie Sanders, in his election campaign, proposed an updated version of the New Deal, he was uniformly derided by conservative economists and politicians. “Where will the money for all this come from?” they jeered. Even his fellow-Democrats, such as the archetypal establishment figure Joe Biden, spent so much TV time portraying a vitriolic caricature of Sanders as an angry, obdurate old man who posed a socialist threat to the US’s “thriving” economy. Similarly, in the UK, the Labour Party’s election manifesto, promising increased investment in the National Health Service, a return to free university education and an end to the austerity measures of the past decade, was ridiculed by Tory campaigners who again claimed to be on the side of economic “reality”.

As soon as Covid-19 sent waves of panic across the United States, Donald Trump and his cohorts rushed through a Bill injecting a staggering $2 trillion into the economy. A quarter of that, predictably, goes to the least needy (the wealthy corporations with sufficient assets to borrow without government aid) and less than ten per cent to public services. Nevertheless, “Spend, spend, spend!” seems to be the new socialist mantra of the Right. But nobody is asking the question they put to Sanders, “Where is this money coming from?”

Similarly, in the UK, by a grim irony, Boris Johnson contracted the virus, was treated by the very health service he had planned to sell off to American “investors”, and promptly halted his pre-election Brexit tirade against foreigners (Britain’s health service is heavily dependent on foreign-born doctors and nurses). Criticism of Labour’s “inefficient” plans to revive public services that had steadily been robbed of resources by successive conservative regimes is an embarrassment to the many voters who are now belatedly expressing thanks for a public health service that is the envy of the world.

So, where does money come from? In an earlier age, money was a commodity, a precious substance used in economic exchange. Today, money is a more abstract concept. In rich nations, money is largely credit. When you go to a bank and ask for a loan, the bank doesn’t first check its deposits and reserves to see if it has enough to lend. It is not deposits that generate loans, but loans that generate deposits. Money is created by private banks “out of thin air”. The main function of a Central Bank (like the Bank of England or the Federal Reserve in the US) is to set the interest rate- to determine how much private banks can charge for the money they create. So, when governments justify public austerity by claiming that public spending diverts money from the private sector, they show that they don’t understand money. Government borrowing creates money that did not exist before.

Covid-19 has also exposed how dependent we are on those on the “underside” of our societies. The people at the frontline of the fight to protect us from the pandemic are the very people whom we routinely ignore, sometimes even revile, and- if the hiTech companies have their way- will soon be replaced by robots: those involved in social care, nurses and hospital orderlies, janitors, sales assistants, garbage collectors, undertakers, mental health workers and migrant labourers on farms and in the food industry. The bankers, CEOs, and celebrities whom the mass media normally fawn over steal way in their private jets to their private estates where they can self-isolate in luxury.

Sanders’ political career is over, but the challenge that invigorated his two unsuccessful campaigns for the presidency – that governments must use wealth not to serve as Nanny to business elites but to help those people who actually need help – has to become central to economic and political thinking in the post-Covid world.

As I mentioned in my last post, the Covid-19 crisis should also shake us out of our nationalist biases and lethargy to realise the importance of working for the global common good. The same selfish inertia which has made governments pay only lip-service to the threat of global warming also lay behind those governments’ under-funding of institutions such as the WHO which has been warning us against pandemics like the present one for some time now.

When Greta Thunberg spoke at the World Economic Forum in Davos, Switzerland in January 2020, she was rudely rebuffed and scorned by the US Treasury Secretary who told her to go to college and first get an education on how business runs. Who now needs to learn how business actually runs?

13 Responses to "Who Will Learn From Covid-19?"

Really thought provoking. Thanks!

And what about examples from other corners of the world? I observe that in my country, government has promised doctors on the frontline an increase in pay, but than had to review the promise, re-calculate how much exactly they will pay – seems like for that same reason: where would the money come from? But at the same time there is no trasparency with the money donated to fight COVID-19 – after 2 months there still no Board of Trustees to oversee the work.
In a neigbouring country, opposition suspects that pro-governmental officials are taking apart the national budget approved to fight Covid-19 by transfering money to offshores.
My observation that there is a general tendency for the rich and those in power to get richer and the rest of population downshift in their economic status.

This is a thought provoking read. Surely our leaders hide behind “where will the money come from” as if it comes from else where yet they create it themselves. Usually when it is about cushioning the poor the Money is not available but when it benefits them and their elite group, there is always a way. We see this a lot in Africa. There is no money to fuel ambulances in rural public hospitals but there is always money to fuel a Presidential motorcade of more than 50 big engine cars regardless of any austerity measures. I really hope after Covid-19 money will be spent where it’s needed.

God bless you. Admittedly, I look forward to your posts and consider them a God-send made up of both smelling salts and political truths that I am frustrated with finding elsewhere ..

Thank you for sharing these valuable insights.

Here is a shocking video report on how racism in the US is affecting the treatment of black Americans with Covid-19 ( we can tell similar stories of discrimination from other countries- Covid-19 is NOT the “Great Equalizer”):

https://www.aljazeera.com/programmes/thestream/2020/04/black-americans-hardest-hit-coronavirus-200422175140206.html

I watched the video report. It is awful and shocking. This won’t get on the news in US, I think. 😦
As for my country, we don’t have statistics for that yet.

I apologize. Thanks for deleting my last two comments. I am genuinely troubled by some of your views, but I don’t like the way I’ve been acting here. It’s driven by emotional reaction more than careful reflection and engagement, which is something I call out in others. I’m going to stop commenting and make a genuine effort to understand where you’re coming from, even if I don’t agree. Peace.

Thanks Vinoth, I like looking in this mirror that I find in your writting.

“Where will the money for all this come from?” : I still hear the echo of this question (asked many times) from some Flemish politicians when it doesn’t bring anything back to the economy. I do have to admit that at this time, though it can be better, our politicians have chosen for the health of the people. When Covid-19 will pass, it will probably be back to business. I like to see the glimps of hope and plitically coloured decisions.

Another thought: Maybe voters will open their eyes and not vote for powerful men who take poor decisions.

Thanks Vinoth for this insightful piece. You raised pertinent questions Where will money Comes from?

Great stuff Vinoth.

Much of this echoes what more radical economists such as Yanis Varoufakis and Ann Pettifor have been saying. If I’m not mistaken, even central banks interest rates have little to do with what retail banks pass on to customers which is usually a lot higher, especially in these days of 0 or near 0 central bank interest rates.

I also watched that Al-Jazeera Stream report. Even though I had some awareness of the problem, it still managed to shock me. One or two viewer comments were astonishingly callous.

It doesn’t have to be ‘business as usual’ but we’ll still have to fight for governments to do what is right. So many economists of all stripes are speaking about killing two birds with one stone going forward; government investment in green technologies and ecologically beneficial solutions (https://www.newstatesman.com/politics/economy/2020/05/top-economists-warn-uk-not-repeat-austerity-after-covid-19-crisis). We have to keep making noise and holding states to account.

That’s not to mention those such as Hungary’s Orban who are exploiting the situation to entrench their own power.

Prayer and protest. Using platforms such as this to educate, provoke thought, contest the old order and speak truth to power. Feet to the fire, and all that.

PS I don’t think Bernie Sander’s political career is over, even if his presidential hopes are. He won’t go quietly into the night and thank God for that.

This is a time to engage with the generosity of the public. A centenarian walks a hundred laps with a walker in his garden and there is enough spare cash for the NHS to benefit from £33 million, a promotion for thé ex-Airman, and a pat on the back by the powerful wealthy. Every Thursday there is an appreciation with a round of applause for Front Liners at COVID19 risk. For once, these commoners, (disproportionately BAME) die and grab media lines. The UK government will ‘compensate’ the Front Liners’ Families with £60,000 each! As a BAME interest official suggested it would have been preferred to pay the wages of these dead to their families until the time of retirement if not for pre-mature COVID deaths.
Now is the time for redefining the way money is used. The sickening tabloid press shows a celebrity with a stolen partner filling their RollsRoyce with toys to relieve their love child’s boredom. Another US clip shows a poor single mum in tears as the weeks to follow will be full of hunger. Are there some people (economists and bankers included) who can capture the public’s imagination and draw up guidance to suggest a living wage for all (based on household needs), compensate the needy (Front Liners and all) with the absurd excess of the wealthy (celebrities, sports stars, millionnaire CEOs and politicians) who in their lifetime will not need this ‘credit’? A huge price is being paid, including 15,000 poor kids around the world dying daily of remédiable disease, starvation and war in addition to a pandemic, which is exposing our inequalities further.
It was the likes of the Christian Lord Beveridge, the Methodist Founding fathers of Labour, who fashioned post war British society – NHS, Social and Welfare services. Whilst on VE Day we remembered the dead Front Liners and ‘drew inspiration’, let us also remember those who rescued post war Britain including those mentioned above and masses of immigrants who felt ‘pushed and pulled’ from their birth countries. Now is the time for courageous leadership – transparent and honest, strong enough to satisfy the needs but not the wants of society. Will the media including the tabloid press be graced by those who will reshape our narratives and understanding of reality?!
Is there not a place for rental and mortgage Sabbaticals and Jubilee style legislation to protect the vulnerable, alternative needs based employment during the pandemic and beyond, global commitments to reduce green house emissions, downscaling the manufacture of arms? A world where vocational sense will triumph over business sense?

Tolita, I found the New Statesman article informative and extremely encouraging, as it shows that my amateur economic thinking is not bunkum! Thank you.

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