Green Economy Journal Issue 48

THOUGHT LEADERSHIP
THOUGHT LEADERSHIP
How To Put It
BACK TOGETHER AGAIN
Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
Four-score Men and Four-score more,
Could not make Humpty Dumpty where he was before
Samuel Arnold Juveline Amusements, 1797 1
BY LLEWELLYN VAN WYK, B. ARCH; MSC. (APPLIED), URBAN ANALYST
the world is in the early stages of a “revolution in economic policymaking”.
Central banks have in effect pledged to print as much money as
necessary to keep down government-borrowing costs. The European
Central Bank is promising to buy everything that governments might
issue thereby reducing the gap in borrowing costs between weaker
and stronger euro-zone members, which widened in the early days of
the pandemic.
Main Street assistance programme in the history of the United States”,
comparing it favourably with Wall Street bailouts a decade ago.
To that end the analysts note that governments across the rich world
are channelling vast sums to firms, providing them with grants and cheap
loans to preserve jobs and keep their doors open. In some cases, the
government is paying the wages of people who cannot work safely: the
EU has embraced this policy, while the British state will pay up to 80% of
the wages of furloughed workers. The American package includes loans to
small businesses that will be forgiven if workers are not laid off. Households
across the rich world are being given temporary relief on mortgages, other
debts, rent and utility bills. In America people will also be sent cheques
worth up to $1 200.
Most economists support these measures. Nominally they are
temporary, designed to hold the economy in an induced coma until the
pandemic passes, at which point the world is supposed to revert to the
status quo ante. But history suggests that a return to pre-Covid-19 days
is unlikely.
Humpty Dumpty is a character in an English nursery rhyme,
probably originally a riddle and one of the best known in
the English-speaking world. He is typically portrayed as an
anthropomorphic egg, though he is not explicitly described as such.
Its origins are obscure, and several theories have been advanced to
suggest original meanings. I thought it particularly appropriate to
describe the following article – what are the impacts of Covid on the
global economy and how does it recover.
Impact and Response
Many commentators and economists are focusing on how governments
go about rebuilding their national and city economies once the world has
passed through what Christopher Joye calls the Global Virus Crisis (GVC). 2
According to The Economist, policy response has generally been swift and
decisive. 3 Globally central banks have cut interest rates since January 2020
and have launched new and substantial quantitative-easing schemes
(creating money to buy bonds) while politicians are opening the fiscal taps
to support the economy.
In the US, America’s Congress passed a bill that boosts spending by
twice as much as President Barack Obama’s package in 2009. Britain,
France, and other countries have made credit guarantees worth as much
as 15% of GDP, seeking to prevent a cascade of defaults. On the most
conservative measure, the global stimulus from government spending
this year will exceed 2% of global GDP, a much bigger push than was seen
in 2007-09. Even Germany, whose fiscal rectitude is a cultural cliché, is
spending more. 4
The analysts at The Economist caution though that to focus just on the
quantitative changes misses something crucial which is that there are
important qualitative changes under way in how policymakers manage
the economy – the responsibilities they have assumed for themselves,
what is seen as a legitimate action and what is not, and the criteria used
to judge policy success or failure. On these measures, the analysts note,
The analysts note that politicians, too, are ripping up the rulebook. In
past recessions enterprises could go bankrupt and people too become
unemployed. Even in normal economic times, roughly 8% of businesses in
OECD countries go under each year, while 10% or so of the workforce lose a
job. Now governments hope to stop this from happening entirely. President
Emmanuel Macron reflects the view of many when he vows that no firm will
“face the risk of bankruptcy” because of the pandemic. Boris Johnson, Britain’s
prime minister, contrasts his government’s response with the one during the
last financial crisis: “Everybody said we bailed out the banks and we didn’t look
after the people who really suffered”. Larry Kudlow, the director of America’s
National Economic Council, calls America’s fiscal stimulus “the single largest
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