Post
by Spiral » Wed Sep 16, 2020 7:13 pm
Too many of you on here are treating this as though debt is the issue. The biggest issue with covid is not debt, but the double whammy of a supply side and a demand side shock, and you can't even begin to address govt debt until you've stabilised the country from the effects of these shocks, which in the context of covid are intrinsically related. Household debt is not govt debt and it shouldn't be treated the same way. While lowering debt/GDP is a sensible long-term goal, the measures we're taking today aren't (or rather, shouldn't be) primarily concerned with national accounts, but rather trying to prevent sustained, long term depression-era demand slumps or ever more severe contractions to the economy. High debt/GDP makes debt servicing more expensive over 2, 5, 10 year periods, sure, but too many of you on here are ignoring that the cost of servicing debt is also a product of market confidence in our ability to pay up, and that is informed by the productivity of the nation. Japan's debt, for instance, looks obscene when you first see it but it is a very productive nation and so its debt levels have been more manageable than a country whose debt to GDP is far lower but whose economy is is far less productive.
The UK lost its AAA credit rating for the first time in over 30 years as it dropped to Aa1 in 2013. Not 2008, or 09 during the financial crisis, but in 2013, at the time the govt was hell bent on shrinking the size of the state, and the drop in the rating was because of subdued growth with little sign of a turnaround as much as it was because of the UK debt burden, something that is rather predictable when you redundify loads of public sector workers and don't pay the ones left enough money for them to recycle into the economy. Without intervention of some sort, it'll be the annihilation of whole industries which will never return. Such a permanent blow to the nation's productivity will have as big if not greater a bearing on the price of our debt than the mere total owed. The free market will not pick this up, and neither solely will free-market oriented supply-side ideology, because supply-side ideology is sort of in opposition to public health goals right now. (For example, rates cuts on concert venues won't matter much if the concert venue is told it is to remain closed, and an income tax cut won't exactly help those without an income). Evidence throughout history shows that govt intervention during crisis can be the adrenaline shot needed to spur growth. This is something that is usually antithetical to Tory ideology, but we'll see if they're pushed into common sense sooner or later. Save the economy first, think about debt after. You can't pay back your debt if you don't have an economy left to create value.
Last thing I'll say, there's no such thing as back to normal. Even if, knowing what we know now about covid, you were to be so cold as to let the virus take its natural course and kill tens of thousands, remove all social distancing guidelines and let folks gather like we're back in January 2020, the simple fact of the matter is that people, now in the knowledge that covid is much more dangerous than a flu like they (and I, admittedly) might have initially thought when it started making news - those people will do what they feel it takes to stay safe. Allow cinemas to open at full capacity, go for it, great, but good luck actually convincing folks to go. The behaviour of people will affect the economy. It's nonsensical to assume enough people are going to fully participate in the economy in the way they did before this virus hit. I know for a fact I'm not going to a footy match (were they to open to crowds) until this is all over, even if a vaccine is years away, because I don't want to kill my family or be deprived from seeing them by self isolating every time I come into contact with some infected person. I can't be alone in thinking like that.
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