Every day the wartime analogies seem more apt. Governments are borrowing massive amounts – as much as 10 per cent of GDP – to bankroll equally massive increases in spending. Central banks are pledging to buy all of that newly issued government debt, if necessary, and every other kind of debt besides, in whatever amounts may be required.
Whole industries are being retooled to provide materiel for the “war,” only today it is ventilators and test kits under requisition, not bombs and fighter jets. We may even see hotels being commandeered as makeshift hospital wards before this is over.
Then there are the range of new income-support programs in the works or being considered: from emergency benefits for workers who have been told to self-isolate, to wage subsidies aimed at persuading firms to keep workers on their payroll, all the way to simply sending cheques to every adult citizen – a full-blown universal basic income.
All in all it’s a good time to be a fan of the activist state. “There’s nothing like the threat of a deadly pandemic to make us appreciate big government,” a Toronto Star headline chirped, happily. Online, the hot takes are everywhere: Wait, so deficits aren’t the devil’s handiwork? Maybe printing money to pay off debt is not so crazy after all. Looks like industrial policy is back in style. Basic income for the win!
The gist of them all is that the use of such extraordinary measures to address an economic crisis such as we have not seen since the Second World War vindicates their use more generally. If that sounds simplistic, it is not without precedent. The great expansion of the state across the developed world in the 1950s and 1960s would not have been thinkable without the experience of the Great Depression, but even more the War.
The successes of governments in mobilizing resources for the war effort led to increased faith in government’s capacity generally. If governments could plan a wartime economy, it was asked, why could they not plan a peacetime economy just as well? All it took was the brightest minds, and a lot of cash: the combination that led to victory in one theatre would assure it in another.
But of course a wartime economy is entirely different from a peacetime economy – as different as war and peace. First, it’s temporary. It goes on for a while, then stops, at which point so do the spending and other measures enacted to fight it. Federal spending hit 44 per cent of GDP at its 1943 peak, half of it borrowed, but by 1947 it had fallen back to less than 15 per cent of GDP and the budget was in surplus.
Most if not all of the measures that are being brought in to fight the current war seem likewise crafted to be temporary. A tax holiday, such as the federal government has promised, only cuts into federal revenues for as long as the holiday, or the crisis, endures. The emergency support payments can similarly be unwound quickly once the emergency has passed. The assets central banks purchase to keep financial markets liquid can be sold off soon enough.
So the kind of deficit that would be extremely worrying in peacetime – there is now talk of a federal deficit for 2020-21 of $100-billion or even $150-billion, roughly 6 per cent of GDP – is less so in the current situation. This isn’t about “stimulus,” or fanciful claims of “multiplier effects.” This is about keeping the lights on, in the middle of a government-ordered shutdown. In that context, it’s entirely appropriate.
The second thing that makes a wartime economy different has to do with what an economy is for. A wartime economy is designed to do one thing above all: win the war. Everything else is subordinated to that singular aim. Productive resources that might have been devoted to making consumer goods are instead diverted to the military, and by and large the public accepts the sacrifice, in part because, again, it’s temporary.
Governments are pretty good at that sort of thing. When there is only one economic objective, and everyone agrees what it is, central planning works tolerably well. But a peacetime economy, at least in a market-based democracy, isn’t about making one thing that everybody wants. It’s about harmonizing millions of individual, and competing, wants – wants that change constantly, and in unpredictable ways. Central planning is no good at all at that.
That doesn’t mean we can’t learn from wartime experience. Good policy ideas that are, for one reason or another, politically impractical at most times often become possible in crises, when the risks and rewards of experimentation are seen rather differently. The baby bonus came out of the Second World War. Perhaps some form of basic income will be the legacy of “World War C.”
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Record fall in UK economy forecast – BBC News
The UK economy is forecast to fall an incredible amount in the current pandemic-afflicted quarter ending in June.
The forecast comes from an average projection of more than a dozen top economists contacted by the BBC.
While the same economists predict a similarly large positive rebound after that, this year, annual UK GDP is still anticipated to fall significantly.
While there is no precedent for shutdowns of large swathes of the economy, 14 of the top economists from the City and business have calculated how much economic activity is being lost.
The estimates range from JP Morgan’s calculation that about UK GDP in the April-June quarter will come in at -7.5% – a sharp contraction – to Capital Economics’ forecast of -24% – suggesting nearly a quarter of entire economic activity will be lost.
Half the forecasts seen by the BBC are between -13% and -15%. Quarterly figures normally move by fractions of a percent.
For reference, just a few weeks ago, before the pandemic hit the UK, the average forecast for this quarter was a fall of just 0.2%. The official Budget forecast a month ago, before the Coronavirus effects, pencilled in growth of 0.4%.
The BBC understands that analyses circulating in the Treasury are in line with the larger end of such declines. But the Office of Budget Responsibility (OBR) has not yet been asked to update projections from the time of the Budget a month ago.
One OBR member, Sir Charles Bean, has referred to it being “not implausible” that for as long as the lockdowns are in force, economic activity will be reduced “by somewhere between a quarter and a third”, and that a three-month lockdown “would knock something like 6-8 percentage points off annual GDP”.
Last week, the OECD group of leading economies said that the immediate hit to the UK economy would be worth 26% of the economy. But it did not put a timeframe on that.
The Bank of England is currently preparing new forecasts for its Monetary Policy Report, to be published early next month. Last month, Bank governor Andrew Bailey said he could not put a precise number on the likely GDP fall, as it depends on how Covid-19 evolves. But “every picture we look on at has a very sharp V on it”, he said.
Such movements have no precedent within a single quarter. The closest comparison would be the sharp fall in the economy during the Great Depression in the 1920s, although that occurred over three economic quarters. A prolonged fall such as seen a century ago is not what forecasters are predicting right now.
These sorts of numbers are anticipated across the developed world, as most nations pursue forms of shutdown to control the spread of the virus and protect health systems from being overwhelmed.
The forecast declines illustrate the difficult balancing act for the government in deciding when and how to lift lockdowns, now not expected until May at the earliest.
They also illustrate the fundamental economic policy challenge that the Treasury and Bank of England are trying to manage – to try to help ensure that there is a sharp rebound from these huge hits, avoiding prolonged damage to the economy.
Alberta's economy loses 117,000 jobs in March amid COVID-19 – Calgary Herald
Alberta’s economy lost 117,100 jobs in March, the worst recorded single-month change on record, according to Statistics Canada.
New numbers released by the federal agency on Thursday reflect the early impacts of the economic toll of COVID-19 on the province as well as the country as a whole, which lost over a million jobs during the same period.
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The numbers reflect labour market conditions during the week of March 15 to 21, by which time travel restrictions and public health measures directing Canadians to limit public interactions had already been put in place. However, public health measures and restrictions on non-essential businesses have intensified since then, meaning job numbers are likely going to look even worse when Statistics Canada releases its April numbers.
“We knew it was coming, but it’s still shocking to see the initial effects of the effort to contain the spread of COVID-19 on employment,” said ATB Financial on Thursday.
‘Dynamic’ physical distancing could help balance COVID-19 fight, economy in Ontario: study – Global News
Dialing physical distancing measures up and down could be a way of sustaining the long-term fight against COVID-19 while not crushing the economy, a new study from Ontario researchers suggests.
The scientists from the University of Toronto and the University of Guelph used mathematical modelling to predict the course of the disease in Ontario.
Their base modelling found 56 per cent of the province’s population would become infected with the novel coronavirus over the next two years.
At the peak of the crisis, 107,000 Ontarians would be hospitalized with 55,000 people in the ICU, the modelling numbers suggested, should nothing be done. The province currently has about 2,000 intensive care beds.
However, the research suggested so-called “dynamic” physical distancing could help keep the health-care system from becoming overwhelmed while allowing “periodic psychological and economic respite for populations.”
Physical distancing is an effective tool to curb the spread of the disease, Canada’s public health agencies have said.
The key, according to study lead author Ashleigh Tuite, is to “ride the wave” _ by pegging physical distancing measures to the number of intensive care beds in use, those restrictions can be loosened when ICU numbers drop, then tightened up again when the numbers near capacity.
“Instead of a sharp up-and-down epidemic curve, we have something that is stretched out and kind of goes up and down, up and down, and we basically modulate our responses based on where we are in that curve,” said Tuite, an assistant professor of epidemiology from U of T.
“When things start ramping up again, then we know that we need to enhance our social or physical distancing measures. And when things are on the downturn, then we can potentially return a little bit more to normal life.”
The paper was submitted in late March to the Canadian Medical Association Journal and published as a pre-print that has not yet been peer-reviewed.
Ontario government releases COVID-19 modelling data
Amy Greer, one of the study’s author’s, said this is another method to buy society time until a vaccine is available, which is likely more than a year away.
“In the absence of access to a safe and effective COVID-19 vaccine, we will need to work hard to slow down community transmission while also recognizing that we can’t reasonably maintain long-term and aggressive physical distancing until a vaccine becomes available,” said Greer.
Ben Bolker, a math and biology professor at McMaster University who was not involved in the research, called it a “sensible study.”
“The really hard part is figuring out how it’s all going to work at a government, logistic and bureaucratic level,” he said.
He said one potential method would be to change the laws around how many people can gather at once.
Both Tuite and Bolker said other tools will be arriving soon that could help. For one, they said, exhaustive testing would allow the province to drill down into hotspots and ensure isolation measures are placed on those people.
That also might allow some people to return to work.
“It sucks that we have to keep the economy shut for a bunch longer,” Bolker said. “But during that time we’re gathering information and figuring out how the hell we’re going to get out of this.”
Atif Kubursi, a retired professor of economics at McMaster University, said the study is a good starting point for how to fight the disease over the next year or two.
“This is one of the most important questions right now: how can you balance the risk of increased morbidity and death versus destroying the economy?” he said.
Kubursi points out that the study does not get into economic modelling and the effect of starting and stopping businesses – something he’d like to see future research take on.
“It sounds a little simplistic,” he said. “I don’t know if it’s easy to turn the economy on and off, but I guess there are some measures you can take to make businesses essential again.”
“We’d need to know the answer to the question: Is it worthwhile? Can we get people back to jobs in big numbers for short periods of time?” Kubursi said.
“If we can, maybe that is a way to keep the economy greased, keep it moving. It could be worthwhile.”
© 2020 The Canadian Press
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