There are those who remain cheerful despite all the gloom – and they fall into three groups. The first category includes those who say that there is no link between an ever-expanding economy and well-being, and that it is time to de-fetishize growth. There has been an abundance of studies that have plotted levels of happiness as GDP increased, but now there will be a plethora of data to show whether a smaller economy, lower personal incomes, and a greater amount of leisure time (some of which is involuntary) lead to happier and more stable societies.
Then there is the group that says the coronavirus has changed everything and the world will never be the same again. This is, of course, what was said during the 2008-09 global financial crisis, but this time around, that claim has more substance. It’s not just that the role of the state has expanded, although that is part of history. It is also that the whole model of the small state, healthy currency and globalization has been called into question by the pandemic.
Governments, even right-wing governments, have been forced into wartime-like levels of intervention: subsidizing wages, guaranteeing 100% loans for businesses, nationalizing or taking stakes in key sectors of the economy. the economy. To take an example, modern monetary theory – which basically says that countries that have their own currencies can print so much money to cover government spending until inflation starts to run out of control – has had its followers for many years but was always treated with disdain. by central banks and ministries of finance. Now the question is not so much whether policymakers are taking MMT seriously, but whether they are making it a silent version.
That said, there have only been two fundamental changes in political economy in the past century – that of the mid-1940s and that of the mid-1970s – and both were painful long-standing affairs. Inertia in the system means that there is no guarantee that the challenge of the status quo will succeed.
Whether this is the case or not probably depends on whether the third category of happy optimists is right. This group, well represented on the financial markets, believes that the growth figures for the second quarter are of little importance because they are the result of a one-off response to a health emergency now over. There was a deep recession when the economies were completely frozen, but the recovery started as soon as the restrictions were relaxed and has been picking up steam ever since. Stock prices have regained much of the ground they lost in February and March, as many City and Wall Street residents believe central bank money creation and rising government spending finance ministries will lead to a V-shaped recovery.
As with the Growth Doesn’t Make You Happy Thesis, that notion will be put to the test in the coming months. In the UK, there are signals – from retail sales, for example – that the economy is gaining momentum.
However, these factors are more than offset by factors indicating a much slower recovery or even a double dip recession. For starters, much of the economy – including much of Britain’s nightlife economy – remains closed.
Then there is the chaotic management of the economy by the government, with the Prime Minister announcing one day a relaxation of restrictions and reimposing some the next. The chances of catching Covid-19 or dying from the virus are much lower than they were in March or April, but you would never know from the flip-flop underway in Whitehall. The impression given by ministers is that it will take a long time for the economy to return to normal, which makes such an outcome more likely.
It is also unfortunate that the Treasury chose this moment – when quarantine restrictions were imposed on travelers returning from Spain, face masks were made mandatory for a wider range of activities and restrictions were tightened widely. part of northern England – to start cutting back on her leave schedule.
After ending the health emergency when Covid-19 first appeared, the government is in the process of making a complete Horlicks of the economic crisis. Who knows, more chaos now could eventually lead to a happier, friendlier Britain later, but one thing is certain: there will be a lot of misery first.