The Global Financial Crisis in 2007-08 was serious but the Global Pandemic is more serious. Late 2019 saw early signs of a new illness but it began to spread in early 2020. Soon it became clear that this was a new virus that was spreading fast. New records were set for producing vaccines but it was early 2021 before vaccines were declared safe and general immunisation was offered.
The USA, UK, the EU, Brazil faced scary numbers and many deaths. Taiwan, South Korea, Australia and New Zealand suffered far fewer cases and far fewer deaths. (Victoria, Australia’s second biggest state had a poor quality of chasing down contacts of people ill with the Covid and lost around 880 mostly elderly people but by early 2021 seemed to match other state outcomes with few deaths. )
After the Global Financial Crisis most countries were soon restored to positive but sluggish growth with very low inflation. The Covid pandemic created a sharp economic downturn. Some countries, including the four mentioned above seem at the time of writing to be experiencing some recovery, stronger than predicted by economists, treasurers and central banks. The larger economies, especially USA and the UK now also show a sharp reduction in illnesses and deaths. This comes with the distribution of the vaccine, but the improvement seems quicker than can be explained by that alone.
Already before the pandemic hit some economists were pondering whether the future would be poorer than the past. The main fact is that the years after WWII were fabulous until the 1970s, with another burst of good economic results in the second half of the 1990s. Since then there have been worse outcomes generally and two major downturns have occurred.
So what does the future hold? Start with President Trump. Look at the massive numbers of votes he achieved in both elections. Many of these voters believe that the economy is not delivering for them. And it’s no longer just the working poor but ‘middle income’ people who have not had real wage increases for decades. The US is the worst case but, in many other countries middle income people do not feel they have a fair go. During the golden years growth most people were beneficiaries but now too many people fail to gain.
An obvious suggestion is that protection from cheap imports from China and other Asian countries would help to deliver more full-time jobs, and discussions with friends suggest the numbers feeling this way are increasing. Tariffs can be used to protect domestic businesses and could also be used to punish countries. that do not treat Australia fairly.
Large companies also need scrutiny. Near monopolies raise prices and make life more difficult than in the golden years when there were more market participants. The imposition of tariffs and breaking monopolies into smaller units will reduce efficiency but provide more jobs and give ordinary working people more opportunities for paid employment.
In the world described here, taxes certainly will be higher, starting with taxes on the wealthy. Wealthy people are expert at avoiding taxes so perhaps there will be taxes on revenues rather than profits. Already we need more jobs in the defence industry, health services and education. We are told that in the USA 21 % of children go hungry. Free healthcare and better education (with lunch provided) would help the poorest 20 % but in the longer run more is needed and that “more” is adequate employment for the parents of those children.
All countries have aimed to spend money in an attempt to minimise hurt from the pandemic. Relative to spending for the world wars and other emergencies, this spending is massive. Already there are signs of goods inflation building and this could restore a problem that bedevilled governments and central banks for many years. Meanwhile asset inflation is running hard and making rich people richer. This is fired by exceptionally low interest rates and cannot last forever. When the downturn occurs it could be very painful for investors.
Looking back over these suggestions, they could come from President Joe Biden. The extremes of riches deriving from free trade and powerful growth have benefitted developing nations and the wealthy in developed nations. The poor and the middle income in developed nations are no longer benefiting. The challenge now is to our democratic way of life. Liberal democracies work only when most voters benefit from having that form of government.
Insurgencies and coups occur when political arrangements no longer benefit the majority. Correcting the situation that now exists in the US is vital if that nation is to return to a workable equilibrium. And we in Australia should do what is necessary to pre-empt such a situation arising here. For many years Globalisation has delivered a healthy nett positive. But it now appears that the pendulum has hit the apogee and the cost (the threat to liberal democracy) now is at risk of outweighing the benefits bestowed by cheap televisions and fridges.
KULTURE
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