Why coronavirus is not ‘the great leveller’ – BBC Newsnight

published on July 27, 2020

Usually a recession closes in slowly confidence ebbs away investment dries up jobs are lost this is different economic activity has simply stopped vanished unlike anything we've experienced before in 2008 this was the epicenter of the UK crisis banks clapped finance seized up

And it was the knock-on effects of that that were gradually felt around the country this time the government has just called a halt to large chunks of economic activity that affects to some extent every business every street every

Person around the UK and the impact is almost immediate in the financial crisis the peak to trough fall in GDP took well over a year and with six percent new forecast from Oxford Economics put this drop at ten percent in just a few months

After 2008 it took three years for unemployment to hit its peak now unemployment is likely to jump Oxford Economics sees a sharp rise from 38 percent to 6 percent and that's despite a furlough scheme designed to keep

Millions of workers in their jobs and the longer-term uncertainty about what happens when it's wound down so what we're seeing so far is that low earners and young people are about twice as likely to be losing their jobs as older

People and higher income people now lots of people are worried about what happens in the future so it may be more broadly spread as the months go by but right now it's lower owners hit holidays and that's coming against a really you know

Significant backdrop of the last few years seen big benefit cuts to poorer families the incomes of poor families actually fell in the last two years that's not what we should have been seeing when you caught me was actually

Growing and that feeds through to a fragility fruits mood to much lower savings rates savings levels amongst those families the fact that this downturn is a choice albeit a forced one explains the size

And the speed of the policy response designed to protect and repair the economy as much as possible avoiding a worse downturn even if it's chief architect won't offer any guarantees in spite of what our

Unprecedented measures in scale and scope you know I can't stand here and say that I can save every single job protect every single business or indeed every single charity the focus of today's announcements that's just simply

Not possible but what we can do is put in place what I think is an enormous amount of support in a targeted fashion as best as possible to help as many people as possible get through this debates about who is deserving of

Government support the conditions that should be attached and who should ultimately pay for it are largely set aside for now but when we come back to them the question is whether this crisis would have prompted a reset in our

Economic thinking their long-term questions about fairness and inequality are the ones that we really need to think about now this has brought home to us the importance of what is called in key workers the workers we cannot do

Without and on the whole these are people who are not so well paid many of them have come from other countries they're immigrants so that's an opportunity to reflect on what's important in society

As activity starts up and streets refill some tough economic analysis will be needed who bore the burden of this crisis and who should shoulder the tax rises to pay for it Helen Thomas there will last week the International

Monetary Fund warned this would be a crisis like no other never have we witnessed the world economy coming to a standstill so what can we do besides witness we're joined now by The Economist Viki Price who was the joint

Head of the UK government economic service from 2007 to 2010 the Nobel prize-winning economist Joseph Stiglitz and Labor's of echtua from 2008-2009 the chief secretary to the Treasury if I can start with you you

Will remember very well the last economic crisis do you agree with that assessment from the IMF this is unlike anything that we will ever see good evening Emily yes I think this is unprecedented this is on a scale that

We've not seen before because of the nature of this because we need to save lives entire sections of the economy are effectively being put on freeze on hold until we can we can get back to normal again until we can get through this

Health crisis so that is very different from previous crises although there are some issues where you know the same issues get raised for example it takes a government it takes something the scale of a government to be able to step in

And support businesses to support families to support people through this that was the same in the global financial crisis it's the same again now and you know only governments can do that there is a problem that we don't

Have governments working together across the world on this sufficiently we should do more of that but there's also as your report made clear those who are on the lowest income those who are having the toughest time are going to also at risk

Of being hardest hit by this as well and that's why governments also have to do and take active steps to make sure there is additional support for those who are being hardest hit those who are on the lowest income those who have

The least resilience as well when we look back to I mean this is a big jump but but come with me on this one post-world War two we saw a brand new social contract we had Bevin the NHS the welfare state essentially emerged from

That war what is that thing this time of it so I think it will be a series of things you're right the first of all it means we have to properly value the people who are keeping off going right now who are often some of the lowest

Paid workers whether that is the social care workers who are complete heroes in this crisis but are often some of the least valued whether it be the public transport workers the cleaners the the people who are at keeping the economy

And the society going at the moment there's also going to be have to be a serious rethink about the fragility of our our whole social insurance the way in which we support each other the truth is that any system would have been had

Huge problems faced with coronavirus crisis of this scale but even so we can see that the fact that so many people are losing their jobs even though the government is trying desperately to support them and to keep them in work

Those those systems that keep people in jobs just aren't strong enough and too many people are ending up on universal credit which we know is too weak a system has too many delays and it pushes too many people into poverty so there

Has to be a rethinking of the way in which we support each other and prevent child poverty prevent inequality as we come out of this as well let me ask you Joseph Stiglitz the same question a different system but exactly the same

Problem if you were looking at levers now in terms of taxation in terms of structural overhaul how far would your imagination be going on this one well I think there is a fundamentally I think addition to the points that have just

Been made all of which I strongly agree with there is another one which our economy is not very resilient we were running running a car without a spare tire we didn't have the capacity to increase the production of tests – we

Didn't have spare capacity to even produce let alone distribute the mass that would that were needed so in the United States we've really seen the fragility of our basic economic system as well as our social protection system

And then I think is going to necessitate a a revisiting not only of the balance between the government and the market that we've just talked about but also and then and the problems of inequality and the fact that some of the people who

Are on the front lines are really so underpaid but we'll have to rethink the way our market economy works because it hasn't served as well Viki price is the it's the whole argument for austerity completely dead

Now I mean it's definitely unfashionable has it has it gone out the window have we forgotten about debt have we forgotten about the deficit well we've seen during the austerity period in the UK anyway and in many other countries is

A quite a lot of the services that we now rely on work cut back or significantly or that didn't in fact increase at the rate they should have done to look after the population so there is a rethink now as to whether

Austerity made any sense at the time was it to wrap it too strict too stringent and has led the problems that we have right now but we are going to have to deal with the debt when we get out of this because so many countries now are

Trying to borrow in order to spend more on the fiscal side and we have the monetary authorities who are putting huge amounts of liquidity into the system and their own balance sheets are going up very significantly so some

Stage will have to rethink but we may not go back country in the world then get it so I mean you you wouldn't advocate anything other than spending at this point I assume and every country will simultaneously be facing these

Extraordinary levels of debt how does that get paid off at the same time then I'm imagining that a number of kind whose will in fact default they're going to need a lot of help from International Monetary Fund because they won't be able

To do anything very much once they get out of it in relation to being able to reduce their their debt positions or even now able to borrow more because the markets won't lend to them and we saw it periods but just recently when Italy was

Almost unable to borrow in the capital markets because the European Central Bank looked like they weren't going to support them and then that made the the ECB the official about changes policies very significantly and now they're

They're putting something like an extra 700 billion of euros into the system in the eurozone to support countries and buy their own debt now there was buying back debt which has already been issued or will be issued giving guarantees in

Other words for for them being able to raise money in the markets so let me bring us back to the the present Evette it was the poorest that were hardest hit in 2008 I think there was a disquiet we now recognize that it was the banks that

Were bailed out that may have brought what we now see is a you know a pretty much worldwide populist revolt will the poor be hardest hit again well I think there were choices that were made I mean during the crisis the global financial

Crisis itself there was a huge amount of support put in place for families for businesses we had a future jobs fund to help young people get into back into jobs but then coming out of that the period afterwards the decisions that

Were made as part of austerity there were two problems with them first of all they didn't support growth and the economy and building productivity so growth was much slower and secondly they were unfair so george uzzell made

Decisions that were about taking billions of pounds tens of billions of pounds out of the welfare system hitting particularly working families hardest those were choices that were made we could make those choices differently the

Most important thing as we come out of this which we will as we come out of this is to make sure we get the economy growing again that you get growth you get productivity you support the public services that we will have relied on to

Get through this in the first place and then all the decisions that we take are based on fair based on considering that those who are the lowest incomes should not be back taking the greatest burdens quite the

Opposite Joseph Stiglitz at the moment this is affecting rich countries what happens when it actually starts affecting the rest of the world developing countries as well well I'm very worried about that

The point is they don't have the resources during since the United States has to respond or even Western Europe people there live much more densely their health care systems are not equipped to respond and there are much

More prevalent problems of health and we know that this particular virus really hits hardest those who have other health problems so it's going to affect them very badly and the important point is that since we have such an

Interconnected world if we don't contain the pandemic there it will represent a threat to the rest of the world second can I just ask you who is leading the way on this because if a coop was talking about the need for global

Response which country is emerging is that as the leading force on this now well unfortunately the United States is not playing the role that it should it's not even having leadership within the United States the IMF is actually doing

A very good job the head of the IMF has been very forceful in articulating the need for a strong action and actually proposing effective remedies where how you can use for instance something called the Special Drawing rights SDR

Such a kind of monetary creation that Keynes put in when the IMF was created and 500 billion dollars could be created and about 40 percent of that would go to the developing countries in emerging markets so that that's one of the strong

Areas of leadership crews have supported that initiative Vicky's voice let me ask you now in terms of what can be done right now I mean there's there's going to be very little political water I imagine between

What labor is suggesting Yvette Cooper was talk about the right choices and the kind of things that we are seeing the government doing already and Richie sunix plans have been pretty generous and widely recognized by by both part by

All parties so is there anything that is missing now in terms of the levers in terms of the things that should be in place one of the programs of course that exists in in the UK or at least has been announced is to allow companies to

Borrow a lot more easily and not paying off a lot of money for it so they can survive the truth is that they're not doing it the banks are not particularly willing to give them the money because of the way that the guarantees work

Firms themselves which see their demand evaporate and they have no idea whether the demand will ever come back because a lot of what we're losing right now will never be recovered like entertainment and it count and all that sort of stuff

They don't want to saddle themselves with loads of extra debt so and some of the initiatives although they look good they look like it's a lot of money going into the economy just isn't getting to where it should be getting and we're

Going to see huge unemployment as a result emerging and the idea event was asked if we could be up 10% like Norway what would you mention me oh yeah yeah it's very very likely and it will stay high for quite a period of time that's

The problem thank you all very much indeed thanks for joining us evening

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