Another wasted crisis?

In the immediate aftermath of 9/11 there was much talk that the real heroes were firemen rather than hedge fund managers. That talk soon disappeared, and Americans’ indulgence of plutocrats continued as normal. This warns us about clapping for carers: it might prove to be a brief emotional spasm with no lasting social effect.

Yes, crises can be turning points. But those of the 1970s and 2008 tell us that, for the left, they can also be wasted opportunities.

Here are five uncertainties about how the legacy of this one.

Will the crisis shift politics in a more technocratic direction?

It has taught us that we need more spare capacity in the NHS and that the government has prioritized static “efficiency” too much at the expense of resilience. It’s also taught us that the we need to build a welfare and monetary policy infrastructure so that help can be funnelled quickly to those in need – for example, ensuring everybody has a bank account so that helicopter money can be delivered immediately, or ensuring that people don’t face long waits and Kafkaesque bureaucracy when claiming benefits. Yes, this crisis was sudden and unpredicted, but so were previous recessions. We need the means to respond to them quickly.

In short, what we need are technically competent politicians focused on improving state capacity.

But will we get this? I had hoped that the Grenfell catastrophe would drive politics in this direction, I was wrong. The fact that people could vote Tory and then clap for carers a few weeks later shows that too many have forgotten (if they ever knew) that politics should be about collective action and regard it instead as a TV gameshow. And there are powerful forces entrenching such a conception, such as Bayesian conservatism and the incumbent grifter media.

Will the crisis increase global cooperation?

Gordon Brown says it shows the need for a global effort to produce vaccines and medical supplies and for global support for emerging markets, whose economies might well be hardest hit. But on the other hand, the Orange Imbecile’s talk of the “Chinese virus” shows that the crisis is also stoking up crude nationalism. Robert Shrimsley says it could provoke “a new emphasis on self-sufficiency” with protectionism and subsidies for farmers and key manufacturers.

How will the crisis change attitudes to risk?

We know, not least thanks (pdf) to the work (pdf) of Ulrike Malmendier, that recessions can have scarring effects. Memories of them can make us more cautious (pdf) even years later.

The political manifestation of this is, however, uncertain. On the one hand, we might hope that an awareness of one’s vulnerability to unemployment might increase demands for redistribution: support for the post-war welfare state was founded in part upon memories of the Great Depression. But on the other, it was (in part) the people who suffered from unemployment in the 80s who handed the Tories their election victory last year.

What’s more, scarring isn’t the only mechanism. There’s also a framing effect. This time next year we’ll be seeing the economic damage done by post-Brexit trade barriers. But these will look small compared to the drop in output we’ll see in the next few weeks and they will therefore seem tolerable to some. A lot of ERGers will be saying “we got through the coronavirus so we can get through this.”

What’s the future of fiscal policy?

One lesson of the crisis is that western governments have much more fiscal space than austerians pretended. And as it’s likely that borrowing costs will stay negative and tax revenues will recover as the economy normalizes, there should be no urgency to cut borrowing much.

But on the other hand, some Tories might see the higher debt-GDP ratio as a pretext for demanding more spending cuts.

How will the crisis change the balance of class power?

James Meadway says a retreat from globalization and workers’s ability to withdraw labour on public health grounds should shift this balance “dramatically back in favour of labour” – especially if we also get a universal basic income.

But higher unemployment will have the opposite effect. And just as memories of the Great Depression squashed wage militancy for a generation – it only re-emerged in the 60s when workers with those memories started to retire – so might memories of this crisis cow labour too.

All of this is deliberately inconclusive. As Jon Elster said, the social sciences are a toolbox of mechanisms which sometimes help us explain without being able to predict. There is little inevitability in human affairs. Those of you who want this crisis to lead to a better world need a lot more than gestures and hope.

Comments

[Mike Cooke]

I think ERGers will go further and say that any problems going forward are due to the covid-19 shutdown and beyond the control of anyone.

[John]

"One lesson of the crisis is that western governments have much more fiscal space than austerians pretended."

Is part of that space because austerity happened? Would there have been the same amount of space if Corbyn had been elected in 2017 or 19, or if Sanders had become US president?

[Paulc156]

@John
Well on the face of it at least arguably, the lesson from Japan seems to indicate that yes we would have still had the headroom to act at least up to the levels of Japan, which has gov debt to GDP ratios of three times that of the UK.
The other thing to consider in your Labour splurge scenario is to what extent would the 'additional spend" have increased GDP as opposed to 'just debt' and since growth did at first decrease under Cameron when austerity was implemented and subsequently growth increased when austerity was relaxed there
are solid arguments for thinking that the answer to your question is yes.

Re Sanders v Trump the question is somewhat moot seeing as the latter has engaged in fiscal profligacy of his own in the form of big tax reductions which whilst providing increased growth for a few quarters also skyrocketed the deficit.

[John]

@Paul,
I was thinking more that although there is a small overlap between the spending promised in Corbyn's program and the spending promised now, the great majority isn't on the same things. So the question is more, is there the fiscal space to do all the other things that were pledged, and the new stuff too?

[Darina Confidus]

Hi, I found a lot of useful and interesting information on your blog! I really appreciate it. Thank you for sharing your professional knowledge and analysis of what is happening. Now you have one regular visitor to your site for new topics.

[derrida derider]

"This time next year we’ll be seeing the economic damage done by post-Brexit trade barriers. But these will look small compared to the drop in output we’ll see in the next few weeks and they will therefore seem tolerable to some"

Not if the EU recovers much faster than the UK. Which is the likely way that any damage from those trade barriers would manifest; they won't cause recession so much as delay recovery. Investment will flow to the EU more than the UK.