As COVID-19 hits the economy, bailouts are a fresh reminder why governments matter: Don Pittis
When this is all over, will penny-pinchers remember the value of governments?
"There is no such thing as society," British prime minister Margaret Thatcher said in 1987, in what came to represent a declaration of the growing push for smaller government.
As with many such pithy and oft-repeated phrases, there were complaints that the famous quote was misused, in this case as a stick to beat the neoconservative movement championed by Thatcher and U.S. President Ronald Reagan.
Reagan's famous quip on the subject was that the most terrifying thing you could ever hear was "I'm from the government and I'm here to help."
But today, as governments around the world offer up help with vital health care, organization and financial support for the crumbling free markets as the COVID-19 pandemic spreads, objections have gone a little more quiet. Instead, a private sector that usually clamours for lower taxes is now asking governments to spend more.
But even as Prime Minister Justin Trudeau injects what amounts to an estimated four to five per cent of GDP in government stimulus, there is simply no way state support can replace the massive amounts of money that normally flood through a healthy economy, says Craig Alexander, Deloitte Canada's chief economist.
"They can't offset all the weakness, but they're a very important part of mitigating how weak things actually become," said Alexander, who had grown hoarse from giving web seminars trying to convince business leaders that the current economic and market gloom was only temporary.
He said one of the most crucial things governments can do — that business really can't — is inspire confidence that massive resources will be used to prevent the economic system from going into a tailspin.
In a strange twist, he said, market gloom has pushed interest rates on federal debt so low that governments can borrow "almost for nothing" and spend in a way that would have been impossible in the high-inflation, high-interest era of Reagan and Thatcher.
Mind the gaps
University of Ottawa political economist Jacqueline Best researches the political crisis caused by the high inflation of the 1970s and 1980s that helped convince cash-strapped governments to reject state spending as a solution.
In the years since, she says, with the private sector celebrated as the solution to all our ills, gaps have formed in social support networks, especially for low-wage earners in the gig economy, and are only being noticed now that we're in a crisis.
All at once, the COVID-19 pandemic is acting as a reminder of the essential role governments and society play in providing social support, from adequate health care to emergency financial help for those thrown out of work. Best says the more we work together to prevent the disease's spread, the more people may notice that, contrary to Thatcher's famous maxim, society not only exists but is essential to our collective well-being.
"It's so clear that what each of us does affects other people," she said.
In talking to her students, she sometimes gets the feeling the concept of collective welfare that predominated during the Great Depression and the World Wars, the time of the Greatest Generation, may be coming back into fashion.
"A crisis like this makes us aware how vulnerable we are," she said.
No time to count pennies
That feeling of potential crisis in business and financial markets — like the worst-case scenario imagined by Francis Fong, the chief economist with the Chartered Professional Accountants of Canada, where markets and businesses fail, "permanently destroying economic capacity" — has convinced those who might normally oppose government spending to favour loosening the purse strings.
"The Chartered Professional Accountants of Canada have long advocated for, during good times, ensuring fiscal balance and fiscal responsibility," said Fong. "Now is not the time for that."
Of course, as critics said after governments bailed out markets in 2008, this may be one more case of privatizing profits while socializing losses.
Despite complaints that it is never enough and that it will take time for money to flow into the economy, Armine Yalnizyan, economist and fellow with the Atkinson Foundation, lauds the Liberal government and opposition for their quick action.
She says the economic magnitude of the COVID-19 pandemic may represent an inflection point that begins to take us away from Thatcher and Reagan.
"I think this crisis is going to absolutely be the last nail in the coffin for trickle-down economics as being any kind of boost to the economy," she said, referring to the idea that helping the wealthy will also eventually help those with less.
In the aftermath of the coronavirus slump, she says, it will become increasingly evident that government involvement is essential in a no-growth economy, and not just to ensure adequate health care and a social safety net.
"After 40 years of being told that the best economic formula is more market and less government, we have our nose pressed up against the glass, seeing that we need more government," she said. "And, of course, that will mean less business."
But once the private sector economy begins to recover from the effects of the virus, perhaps we shouldn't be too surprised that when the time comes to pay the bill, the current consensus in favour of government intervention in the economy will have fewer champions.
Follow Don on Twitter @don_pittis