Some experts say we grossly underestimate the pandemic. Other experts accuse them of scaremongering.
Still others steer the middle course: we’re doing neither too much nor too little, but just the right amount. Hail the PM. You know that empty plinth in Trafalgar Square? That’s where a bronze Boris Johnson will stand proudly for centuries to come.
Every possible epidemiological permutation has its authoritative champions with a whole alphabet of credentials after their names. Do some letters outweigh others? If so, which?
Because of all this uncertainty I find it hard to come down on either – or rather any – side of the argument. As far as I’m concerned, the pandemic may be just as bad as it’s described. Or worse. Or better. It may be over in a month or two. Or in a year or two. Or never. No one really knows.
We do know one thing though. Sooner or later Covid-19 will go its merry way, and the country will return to… what exactly?
Here we leave the realm of conjecture and enter one of near-certainty. For, while we have little basis for assessing coronavirus medically, we do have experience of governments coming out of cataclysmic crises. And, as far as the economy is concerned, this government’s first budget and publicly stated plans provide enough information for confident forecasting.
Alas, there are no reasons for optimism. Not to cut too fine a point, our economy will be wiped out – that, even if the widely predicted run on banks doesn’t happen.
Many businesses will go under, capital investment will plummet, unemployment will soar, as will the size of the social budget. Deficit spending will hit heights never seen, nor indeed imagined, before.
The country will lie in ruins, which will be just as bad as after the Second World War. Or, for being less visible to the naked eye, even worse.
After all, when one sees a destroyed city block, one will know what needs to be done, even if most people won’t know how to do it. However, when the stock market loses half its value, the currency is well-nigh worthless as are people’s investments and pensions, when much of the public purse is used to pay interest on gargantuan loans and never mind repaying the principal, what should the government do?
Well, one model of possible response is provided by post-war West Germany, led at the time by Konrad Adenauer and his economics advisor (later Economics Minister, still later Chancellor) Ludwig Erhard.
Adenauer and Erhard exceeded their authority under the law imposed by the occupying powers to shift the economy away from the Keynesian (that is, socialist) practices mandated by the Anglo-Saxons and free it up in one fell swoop.
They took that plunge on a Sunday, when American and British Keynesians had a day off and were thus in no position to stop them. At the same time, Adenauer and Erhard told the Germans that there would be no huge deficit spending on a Bismarck-type welfare state, not in the immediate future at any rate.
This would come when the economy got up on its feet. Until then the Germans were told to tighten their belts, work hard and count their pfennigs.
The ploy worked to perfection, and within a few years the country climbed to the economic summit where it has more or less stayed to this day, despite the combined ballasts of the reunification and the EU pulling it down.
The other model was British, inspired by Keynesian notions of massive state interference financed by runaway deficit spending. And, even though Britain had not suffered destruction on Germany’s scale (the combined yield of Allied bombing was close to three megatons – the language of the nuclear age), it took the country several decades, not a few years, to recover from the war.
Obviously the analogy isn’t airtight. However, mutatis mutandis, it provides useful guidelines and raises a vital question. Will HMG take the conservative or socialist road out of the impending crisis?
We already know the answer to that one. Even before the pandemic the government unveiled an economic policy that must have made Keynes sit up in his grave and applaud.
Austerity (which never existed in the first place, and which misnomer merely designated promiscuous, rather than suicidal, borrowing) fell by the wayside. A trillion-pound budget leading to a two-trillion sovereign debt was hailed by all and sundry as a long-awaited liberation from the shackles of ‘Thatcherism’.
The government also outlined plans for massive construction projects financed by the Exchequer and an unsustainable increase in social spending. Experience shows that, even when the economy is ostensibly healthy to begin with, such policies will take a year or two to put it in the coffin. Another year or two, and the lid will be nailed shut.
Thus coronavirus may be ruinous for the economy, but for the government it’s a long-term godsend. It’ll be able to use it as an excuse for years to come, using the pandemic to justify its own economic incompetence. Politics will trample economics underfoot, and ruinous borrowing and spending will continue to the accompaniment of hosannas for Boris the Saviour.
In the process, people’s dependence on the state, and therefore the state’s power, will burgeon exponentially. For history shows that not all of the civil liberties suspended in extreme situations return afterwards. The state likes to keep some back as a memento.
As a result, the people will be not only poorer, but also less free. The government will be given carte blanche to create a socialist state (that is, a more socialist one than we already have), while talking hypocritically about the unfortunate necessity for extreme measures.
I look forward to the next couple of years with more trepidation than hope. What little hope I do have is that I’ll be proved wrong.