The global economy is in a mess it is fair to say, probably a mess the like of which nobody alive, or even with a grasp of recent economic history, has seen.
Will we get out of it? For sure, there will be another side, but the thorny question is how? There are a number of approaches, and to simplify them, they are basically polar opposites, but they have both been tried before, and while situations differ, there are some historic precedents that might be worth studying.
After the credit crunch of 2008 austerity was the policy of choice in most developed economies. Faced with the gigantic bill that was run up as billions, if not trillions were pumped into the economy, governments cut spending to the bone. The mantra was ‘We’re all in this together’. It wasn’t true then, it won’t be now, and it never was, and it won’t be this time.
The developed world faced a problem following the Wall Street crash in 1929, and the world took a similar approach. The results were stunted economic growth, mass unemployment, a polarisation of society into the have, and have nots, and a rise in populism, and isolationism as politics took an abrupt lurch to the right. Sound familiar?
These policies were still in place as the world descended into war again in 1939. The need to spend to finance the war machine immediately trumped austerity and the only alternative was borrow, and spend. The public on all sides were encouraged to buy war bonds, and the financial institutions and money printing presses shifted into high gear.
As the post war dust settled in 1945 Europe and Japan were in ruins, debt was unimaginably high and again the task of rebuilding, physically and economically began .Things were going to be different this time.
The Marshall Plan, named after George Marshall the US Secretary of State, wary of repeating the mistakes, and consequences of the 1930’s austerity, and more than a little mindful of the spread of communism through a devastated western Europe, oversaw a plan of massive investment and rebuilding.
Implemented in 1947 the aid package equated to the equivalent of more than 200 billion dollars in today’s terms. It rebuilt homes, infrastructure, industry and agriculture. The rebuilding provided massive employment and allowed businesses to build for the coming century, rather than being stuck in infrastructure from the last one. Europe, the USA and Japan saw decades of economic growth like never before, and in many of those places a welfare state, with universal pensions and healthcare were established for the first time. In short, borrow and print money and hope that in spending it, you create enough growth to pay back the debt.
The post Covid world is going to need rebuilding, and while we may not have to rebuild homes and factories, the economy needs to be rebuilt from the foundations up.
As early as April Spanish PM Pedro Sanchez was calling on the EU to treat this as recovery from war, suggesting ‘Coronabonds’ should be issued by the ECB and the money invested in a Marshall Plan style programme.
What an opportunity there is, during this most traumatic of years we have already witnessed changes in attitudes and apparent permanent changes to our daily routines. City centres are quiet, many people are happily working from home, and happy to continue doing so, air travel once seen as a perk of business, now looks like a hassle compared to a Zoom call from your laptop in your home. People seem keen to move out of our crowded urban centres for a better quality of life in the green belt, distributing wealth and opportunity more evenly than ever before. These are just the things that happened by accident. Imagine what you could achieve if you did this on purpose? Billions of Euros of investment to bring sluggish businesses into the digital world, invest in green technology to head off potentially the biggest threat we have ever faced, and innovation that could take us to who knows where. It’s a fantastic opportunity.
Human beings are at their best when given their freedom, let’s not put ourselves in the chains of austerity again.
Phill McCoffers
