We need targeted, not universal, approaches, based on helping key workers and the most vulnerableby Jagjit S Chadha / March 23, 2020 / Leave a comment
One of my favourite books about the way normal life can unravel is Norman Lewis’s masterpiece, Naples ’44. Based on his observations as an intelligence officer at the end of World War Two, I have always treated the medieval-sounding events, health hazards and a collapse in civilised norms, as a form of fiction that I would never see in my lifetime.
But when health systems are at breaking point and the global economy is faced with a sudden stop, as it is now from the Covid-19 coronavirus strain, what are the policies we need to ensure a return to normality rather than further economic degradation? Ideas such as the adoption of universal basic income and “helicopter money” are being touted as way of preventing the ultimate fall. I am not so sure.
The first question for an economist is always: what is the shock that we face to the structure of our economy? Having taken a view on this, we can decide the best response. The Covid-19 virus has shrunk to almost zero the normal interactions that dominate our socio-economic relationships. Those who can work from home will do so, probably about 30 per cent of the workforce on a sustained basis, and we will switch our expenditure patterns away from recreational activities to necessities.
Much production will be halted. And we will also worry about the unknowns over how long this disruption will persist and ultimately whether our long-established trading and mobile patterns will return to anything like their pre-crisis norms. Many firms will be facing a severe loss of revenue, as will many workers, particularly those in self-employed and precariat industries.
The shock to the economy therefore has a number of elements. It involves the introduction of a large amount of uncertainty—what former Bank of England Governor Mervyn King has, with economist John Kay, called “radical uncertainty—into the economy that will stymie planning and activity for a prolonged and unknown period. The good news though is that the initial shock is likely to be temporary, and so part of the policy response must be to limit the duration of its impact.
A further aspect is that this crisis was not caused by fiscal, monetary or regulatory laxity; it is essentially an “Act of God.” Therefore there…