A flurry of forecasts of economic doom arrived yesterday, though there’s good reason to think they were over-optimistic in their doom-mongering. The IMF have predicted a 3 per cent slump for the year globally, presuming the world can get out of lockdown by summer without a second spike. In the UK, the Office for Budget Responsibility predicted that the economy could collapse by as much as 35 per cent in Q2, but then make a remarkable bounce back before the end of the year, recovering lost ground with “no scarring” from the virus.
We can take this forecast for a V-shaped recovery with a pinch of salt. OBR has previous in this respect. They repeatedly forecast sharp growth rates for the first seven years of the austerity era, only for the economy to fall well short every time. There is so many unknowns in how the economy is going to react to this shock that it’s probably better not to make guesstimate’s for anything more than the next three or four months. A new paper in Science has argued that there could well be physical distancing measures into 2022, and that the idea this will be under control by Summer is wholly unrealistic. There is also no reason to think that world leaders will do the right thing and support some of the poorest countries in the world to deal with major outbreaks. The evidence suggests the claws of imperialism will be sharpened and the powerful states will prioritise themselves over others, even if it hurts efforts to contain the virus overall. See Trump suspending WHO funding today. Put simply, if the OBR couldn’t predict the impact of austerity on suppressing the UK economy after 2010, why would anyone think they can make an accurate prediction now?
We can leave the economists to play with their recovery shapes – V, W, L, etc. Let’s deal with what’s in front of us. This morning an RBS survey has found that Scotland has outpaced every other part of the UK except Northern Ireland in job cuts. Scotland is a country heading rapidly towards mass unemployment. The reality for many families battling Coronavirus is they are also battling to keep their heads above water in terms of paying the bills. Financial precarity is fatal to maintaining commitment to public health efforts – if people can’t provide the basics for their family, they will take risks with their health and the health of others. It’s good that the Scottish Government has established a helpline for vulnerable people and is stepping up mental health support for those in lockdown, but ultimately we need commitment of resources to provide for essential needs: a hotline can advise you on what help you can access; it won’t pay your bills or guarantee you a job. Lockdown does not stop anyone from eating in and of itself – it’s poverty that does that.
To address this, we need what economist James Meadway has called a “hibernation economy”. This is the opposite of a war-time economy, where all resources are mobilised for the war-effort. In a hibernation economy you want to “demobilise” large sections of the economy to contain the virus, but protect the “core”: the essential things we all need to live secure and dignified lives. This “security of supply” includes electricity, gas, food, housing, broadband and of course health & social care. Under this plan, the economy should shrink, but it should shrink in the way the diameter of your hand becomes smaller when you make it into a fist: securely and together. Becoming smaller while maintaining the current structure of the economy is not hibernation, its exhaustion and ultimately collapse.
The hibernation economy does not look like conventional Keynesian stimulus: we don’t need to stimulate activity, we need to prioritise activity. And while Universal Basic Income can be one part of ensuring the financial security of all, on its own it will not ensure living standards if prices for essentials like food rise. Money is only as valuable as what you can purchase with it. We need to challenge the very foundations of how the British economy works so that social need is put before shareholder value. Unemployment, poverty and hardship are not inevitable.