There has been much use, and overuse, of war imagery to describe the challenges of Covid-19. False analogies, which this is, can be dangerous. Even so, some comparisons are legitimate. Saving both lives and livelihoods, like war, is a huge and continuing expense. That it might have been less expensive had we been willing, during the years of “austerity,” to spend more in advance preparation is now beside the point (though that is also sometimes argued about wars). The 2015 Conservative Manifesto stated unequivocally: “Keeping you and your family safe is our overriding priority.” They didn’t spend the money to do that.
How current costs are to be paid for is reasonably a topic of debate, much of it unreasonably mindless. Mrs Thatcher firmly established the analogy between household and national budgeting, and managed to impose this nonsense on the popular imagination. It is incoherent even in its own terms: we all know that we can sensibly purchase now what we can’t yet afford, and those shrinking numbers of us fortunate to own our homes have almost without exception done so through a mortgage which lets us spend money far in excess of what we have.
But the comparison fails on other grounds: quite simply, nations and households are not the same. As John Maynard Keynes pointed out, “In the long run we are all dead.” That doesn’t apply to nations or, in so far as it might do, the time scale is very different, and so a national debt can be regarded as safe.
But there is an even greater difference. When people borrow, they borrow from other people or institutions. When we collectively borrow as a nation, we borrow from ourselves, i.e. from the Bank of England, and how we deal with that debt is open to several approaches, none mutually exclusive.
We can, for instance, simply cancel the debt. If that sounds a bit too good to be true, it is, because there are potential penalties. Cancelling the debt (“printing money”, in effect) would increase the money supply without any corresponding increase in wealth, and a possible consequence of that is rampant inflation, which has the potential to be ruinous for most of us, though a small measure of inflation is usually regarded as beneficial. The Bank of England aims to keep inflation at about 2%, and is currently falling short (at about 0.5%). So-called “quantitative easing” (q.e.), which has seen huge amounts of money pumped into the economy over recent years, is also “printing money” and, aside from the fact that it has, at best, only partly achieved its stated aim, q.e. has not created unwieldy inflationary pressures. Consequently, interest rates – raising rates being the orthodox way of taking excess money out of circulation in order to control inflation – are at present extraordinarily low, with even negative interests rates being actively considered (i.e. you get paid to borrow money).
It therefore looks reasonable and responsible to consider cancelling at least some of the debt.
There are other possibilities. The M.P. for South Dorset, Mr Drax, should be well aware that his own personal wealth is in part derived from a huge and very long-term national debt. Parliament, having been significantly reformed on comparatively liberal grounds in 1832, approached the 1833 Slavery Abolition Bill needing a very substantial bribe of the pro-slavery interest to see the bill progress to enactment. The result was some 40% of the whole national budget paid as “compensation”, paid not to the ex-slaves, but to the ex-slave-owners for the loss of their “property”. Anyone who has paid UK direct or indirect taxes up to 2015 has contributed to paying off that debt (including, as a bitterly ironical and shameful footnote, those descendants of slaves caught up in the “Windrush” abomination who are dying in poverty while waiting for the Home Office to complete “quality control” on their compensation). Mr Drax’s distant ancestor was a prime beneficiary of that “compensation”.
The Drax… estate: how the countryside was stolen from the public, using profits from slavery
In other words, there is no need for an immediate panic over repayment: a nation is assumed to be not “in the long run…dead”, and is therefore secure, with current interest rates at a historic low.
Other possible approaches to the debt include reducing public spending, another version of “austerity”. This would be neither humane nor, even on current political principles, sensible. The last ten years have not only done untold harm to the country, with declining investment in, for example, health, education, social care and a wide range of other social provision; they have signally failed in their own terms to achieve the aims of policies that were claimed to put the economy on a firmer footing. And whatever longer term benefits might or might not be discerned in a cloudy crystal ball, there can be little doubt that the short-term effects of Brexit, now almost upon us, will call for even wider forms of social support as well as stimulus to the economy. That will not come in any significant way from the private sector: the fabled “risk-taking” entrepreneur takes care to limit the risk. In difficult times, it is the state that has to step in. This is another aspect of the war analogy which is reasonable.
That alone must call in question the wisdom of even considering precipitate settling of Covid-related debts, unless by a measure of straight cancellation. Any tax increases – and we are a mid- to low-taxed country compared with most other countries in western Europe – would need to be concentrated on the wealthy and invested back into the economy, not wasted in writing off debt. There is little or no empirical evidence that modest rises in tax for the wealthy in times of obvious need have any damaging economic effect, and modest rises would be a sensible recourse. One aim should be to put more money into the poorest parts of the economy: such money gets spent, mostly locally, and constitutes a much more effective economic stimulus than the approaches of recent orthodoxy.
We have been ruled for too long by dodgy economics that leave too many people outside the mainstream of society. There will be a temptation to return to more of the same. It must not be allowed to happen.
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