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In the face of this twin public health and economic crisis, the main economic challenge for the government is to maintain essential services and keep the economy in a state of induced hibernation. This will help people to financially survive the impact of job losses and falling incomes, and businesses to stay afloat, so that the economy can begin its recovery once the contagion is contained to a lower-risk level.
The extension of the furlough scheme is a good step, and measures to help firms with loans are needed to keep the economy on life-support. But we must do more directly to help people pull through. We must worry about people who were already living in or near poverty and those who have now have fallen into it, and step up welfare spending and outreach to prevent hunger and destitution, a humanitarian disaster that would also compound the public health crisis.
Given the urgent need for PPE and medical supplies as well as food and other essentials, we should also consider extending the transition period from the EU, to minimize further shocks to already battered supply lines.
Maitreesh Ghatak, Professor of Economics at LSE
The lockdowns necessary for limiting the spread of Covid-19 have an enormous economic cost. We estimate that the lockdowns reduce GDP by some 20% over the period of their implementation, with the impact is likely to grow with their duration as some activity is lost permanently. The economy is being used as a tool to control the spread of the virus and is the reason that many are losing jobs and income. The state through active and state-dependent fiscal policy by HMT has to step in and provide “insurance” for those affected, as it can borrow from unborn generations who will benefit from the maintenance of economic structures. The medical evidence so far suggests that the lockdowns are likely to persist and also because they are a global phenomenon we need to ensure that we are ready to provide more resources and with greater urgency than we have to date. Better still we should co-ordinate at the level of the G20 and look to deploy domestic public investment rapidly should lockdowns go into any temporary abeyance.”
Jagjit S Chadha, Director, National Institute of Economic and Social Research
Editor's reply
Dear Maitreesh and Jagjit
We’re expecting a lot from the state: to save lives, crush Covid, keep companies afloat, pay wages, fund benefits, lift lockdown and prepare for the future. It’s more than any system can cope with and more than we can afford for long. At some point we need to restart the productive economy, — the best way to reduce poverty. The longer lockdown is, the more painful life will be after it, when the impact will bite as business support schemes end and firms go bust. The state will get bigger after this crisis and debt will grow, and right now that is essential, but it’s not an alternative to recovery.
Julian Glover, Associate Editor