Читать книгу TOO MUCH MONEY - Gregory J. McKenzie - Страница 6

“The weight of stone and sand is nothing compared to the trouble that stupidity can cause.” PROVERBS 27, 3

At some time in 2020, each country in the world restarted its economy. Some became false starts, but some were successful. There was a race on among world leaders to be “first out” of recession. This was misguided national pride getting in the way of a sustainably safe recovery. The best strategy was to get workers back in employment on fair terms and under safe conditions. Some countries allowed employers to exploit their new industrial relations exemptions. Desperate job seekers were forced to surrender hard won benefits. This was not the way to restore labour productivity or even to ensure future sustainable economic growth.

Of course, the more reckless countries showed immediate rebounds in money GDP. Of course from a strict locked down economy any reemployment would raise GDP. However to sustain that increase in GDP an economy needs to boost the purchasing power of its own currency. Any exchange rate instability could prove fatal to export revenues. With massive public debts hanging over most countries, low official interest rates are essential for some time.

But the start of December 2020, certain large economies were back in lock down mode. Germany, France and the United Kingdom had no choice but to go back into full national lock downs. With winter approaching their hospitals were being overwhelmed. Even smaller European countries were struggling with an excessive demand for hospital beds. Yet countries with some of the world worst pandemic numbers remained open. Indonesia was in denial as far as the impact of the pandemic on their population was concerned. Brazil acted too late to stop a collapse of their health response.

The USA, South Korea, Japan and India were struggling with overcrowded hospitals. Even Russia and China had outbreaks in parts of their large countries. Yet none of these countries returned to the sort of national lock down they used for the first wave of the pandemic. Business interests were pressuring governments to keep open some parts of the domestic economy.

The search for a new path to sustainable economic development now appears to be too difficult without any COVID19 vaccine. But structural change is ongoing even under the strain of a pandemic. If world trade has been made more difficult in 2020, then delivery infrastructure must be changed. If planes are still grounded around the world, then Just In Time (JIT) inventories must be realigned. As foreign sourced labour becomes even more difficult to procure, then domestic labour sources must be improved. Domestic manufacturing must be encouraged. Its time to 'reinvent the wheel".

Efficiencies must also be found in areas like administration costs if other costs are to increase. Fixed costs must also be renegotiated and realigned to meet the 'new normal' economic system that is emerging. The ‘work from home’ emergency measure may provided cost saving opportunities to service businesses. There may not be a continuing demand for even more centralized office space. At one and the same time, domestic manufacturing industries need to be expanding to cover any supply shortfalls. But all this has to be done quickly to avoid a deep recession in many economies.

The centrality of productivity measurement needs to be carefully reassessed. Workers at home must be monitored closely for stress levels. Those still working at worksites must be supported by strict distancing enforcement. Transport workers must be carefully rostered. A ‘new normal’ means that managers must lift their own productivity. Robotization of certain workplaces may have to be accelerated.

Post pandemic reconstruction will have further demands. The need to work from home more often will require land resources capable of being used for this purpose. The old system of dormitory suburbs feeding on CBD infrastructure will have to be reassessed. Then there will be the desperate need for retraining of sections of the workforce. Internet infrastructure must be modernized to meet new levels of demand.

With youth unemployment entrenched, job skills training programs will be essential. Older workers will also need retraining to keep them employable. On average older unemployed people take twice as long to find new employment. An ageing workforce will need new recruitment and job retention strategies.

Then there is the need for domestically produced capital. This will be vital if supply chains remain dysfunctional. Finally there will be a need to curb the ‘brain drain’ of a nation's human capital. The best brains and skilled workers will be needed at home. Just how to meet the remuneration demands and on costs of such highly skilled workers, will become a big issue for labour economists.

No one is suggesting that the past will come back to haunt capitalist economies. But the lessons of the past warn us to be ready for big changes once the pandemic is over. There may be revisionary attitudes that drive future economies back towards an abundance of misplaced overconfidence. Equally there may be new opportunities that arise from the dismantling of just such past economic practices. Trade blocs may realign. Global payment systems may be digitized. Business practices may be streamlined. The future macroeconomic management of domestic economies will present many challenges to governments around the world.

As for immigration controls, these were already being tightened before the pandemic shut borders. As national borders reopen, there may be less tolerant practices at border control sites. Highly skilled workers will always be sort after, but this tolerance may not be extended to all economic refugees. Higher domestic unemployment usually means that government immigration targets are politically constrained.

In 2013, globalization was not particularly successful at restarting economies after the GFC. In many countries, it failed because of poor transport system outcomes. One exception was Sweden. For a time, Sweden was able to make a success of its superior infrastructure. Yet this notable exception does not justify any suggestion that globalization is the best way to restart economies in 2021. Open borders may bring an added risk to the national health of any country. Again universal vaccination programs may change this dynamic.

The outstanding success of capitalism lies in the profit motive. Producers will provide goods and services if they can make a profit. When risks must be taken for future production, the profit incentive will encourage risk taking and net private final investment. For example, during the pandemic there was an acute shortage of sanitation products. Domestic manufacturers saw an opportunity so they retooled their productive capacity and factories. This was done to produce much wanted hand sanitizers, masks, face shields, ventilators and surgical gowns. Other domestic producers increased their production of things like baking flour, toilet paper and pasta. They did this in response to the higher demand and were rewarded with greater profits.

To get businesses to increase their planned net investment expenditure, government attempts must be made to boost profits. Yet this must not be at the expense of workers wages. To simply make workers accept real wage decreases is misguided in the extreme. If governments don't want a permanent state of economic stagnation, they must resist calls for a wage freeze.

It is often in the self-interest of workers to work harder and thus increase business profits. But the social contract here implies no reduction to money wages. And governments, for their part, find that their income taxes rise when more workers are employed for longer hours. But pandemic lock downs break down this cosy symbiotic relationship. Workers suddenly are underemployed. Governments find themselves providing wage subsidies. The profit motive, once taken for granted in free enterprise economies, disappears and marginal businesses fail. Other businesses delay investment plans. This then lowers future economic growth.

A wage-profit downward spiral can hold any economy in a contracted period of stagnation. This certainly has happened to Japan. To break out of such a cycle is not easy if money wages are frozen. A new social contract needs to be negotiated. Workers may be convinced to give up non-monetary benefits if employers are prepared to guarantee future rise to money wages. Obviously national government must ensure that such a social contract is enforceable on any recalcitrant economic units.

When you look at consumer capitalism in the Twenty-First Century, two characteristics stand out. The first one relates to the internet. This is the marketplace that is heavily orientated towards consumerism. The old view of a market being a physical place, no longer applies universally. The second characteristic is price volatility. Even when you set aside price gouging, there is still great volatility with many market prices. Supply chain events in 2020 have made price volatility a bigger issue for economic management.

Global markets in 2020 have seen a lot of price volatility. Sometimes this is due to exchange rate volatility. Other times it is due to seasonal factors. It may also be due to a new phenomena called ‘fear pricing’. Only noticed in 2020, the unusually high prices for certain essential goods traded on global economies, may be due to fear of trade sanctions and/or supply chain failures. This reduces the certain knowledge of future prices that monetarists and supply side economists try to suggest exists in all markets. Such price volatility can cause panic buying and panic selling. Consumer wealth can suffer, and this can cause recessions.

As for the future of e-commerce globally, you only have to look at the great gains made inside mainland China. The impressive expansion of online shopping and the increased use of remote conferencing shows the way forward. The initiative known as “social commerce” is a convergence of three technologies: live-streaming; short-form video; and social-networks. In China, this can see as much as $7.5 billion of sales in a single day. Sometimes called live-stream retailing, one estimate puts annual sales inside China, for 2020, at $153 billion.

China has allowed the development of what is known as a digital mall. Along with “social commerce” there is also “omnichannel” which provides remote access to supermarkets across China. Then there is the “grab-and-go” shopping opportunities provided by staffless stores and smart vending machines. Payment is by smartphone apps using scanned QR codes. This hybrid shopping now has 160 million businesses from allover China. They are mainly small and medium sized businesses using smartphone apps for their online shopping.

For most countries outside the dynamic Asia-Pacific rim, recovery after lockdowns will be slow and painful. Due to certain hawkish attitudes inside government ranks, some wage subsidy programs were instituted in a very restricted way. For example, in Australia the money was not provided directly to workers who had been laid off or placed on reduced circumstances. The money was paid to employers in businesses that suffered revenue falls due to the shutdown. But again, not all employers were given these wage subsidies. On top of this failure of policy settings, the wage subsidy was paid in arrears. Businesses had to drain their cash reserves to keep the workers on their books until the government got around to sending out the wage subsidies.

In Australia, a certain amount of wage theft occurred due to the rushed nature of the emergency situation. Finally, the most glaring weakness of this program was that one million casual workers were not covered. Young people trying to support themselves whilst doing career-based courses had nowhere to go for help. They were effectively abandoned by their government. The only workers worse off were the foreign students who got no financial help from the Australian government.

Compare this with the wage support program in the United Kingdom in April 2020. Here the workers had the full support of their government. In Australia low wage labour was abandoned to market forces. In the USA market forces were allowed to fire underemployed workers. Whilst in the UK all levels of wage labour had the full backing of government handouts. European workers, inside the Euro zone, had the protection of tough industrial relations laws. Yet the “hawks” of northern Europe were still able to delay stimulus programs aimed at helping unemployed workers.

After the GFC, high wage rates had made two of the world’s top economies use globalization to advance business profits. The loss of middle-income jobs, factory jobs and full time jobs destroyed the ability of consumers to advance their personal wealth. With renewed concerns about these economies after the Great Recession, the year 2010 was marked by political indecision. The US economy seemed to be facing a double dip recession. While in Japan geographic unemployment became entrenched by government inaction.

Only the central banks in these two countries sort to support employed persons and small to medium businesses. The US Federal Reserve was faced with demands for more “quantitative easing”. Some economists went so far as to suggest that $US1 trillion of US treasury bonds needed to be purchased by the Federal Reserve. The Japanese central bank allowed official interest rates to enter negative territory. This made for an effective cheap credit stream into financial markets in Japan. Cheap consumer loans resulted in deficit economic units surviving the lockdowns.

In 2010, only some two years after the GFC, economists suggested that only monetary action was needed to increase consumer demand. The experience of most economies in the next nine years brought the effectiveness of this policy response into serious question.

Then in 2020 similar monetary action was not possible due to the already low level of official interest rates. Yet supply side economists asked for more quantitative easing to be used to fund public debt. But the scale of sovereign debts this time around is much greater. Trillions of dollars of new public debt will take at least thirty years to repay. There is little chance that official interest rates will stay low for that length of time.

Keynesian economists have proposed Modern Monetary Theory as a way to run very large budget deficits for as long as it takes to reboot domestic consumption expenditure. The reason that such a policy action may not work is related to the modern appetite for hoarding. The critical success factor for economic recovery is the velocity of circulation of money. This cannot be increased by just increasing the quantity of money. In fact, such action can be counterproductive. As Keynes once said, the purpose of economic activity is consumption. You can increase the velocity of circulation of money by encouraging consumers to increase domestic consumption expenditure. Yet this will only happen when consumers are confident about employment. Until unemployment is substantially reduced, all other policy action may turn out to be futile. Hoarding by surplus units may negate any benefits from printing more money.

This centrality of domestic consumption expenditure can be seen in another economy that was in serious trouble during 2010. The Japanese economy had continuing problems with stagnation and disinflation in the first decade of the Twenty-First century. Their policy makers found that monetary policy was not able to stimulate such a sluggish economy. It was a lesson they had to learn the hard way in the 1990s. So in 2020 they used fiscal policy stimulus measures. But with already abnormally high household savings ratios, such policies provided little stimulus to domestic consumption expenditure. An unintended build of stocks by Japanese retailers saw a boost to inventory investment that blocked increases to net private investment. Planned investment actually contracted across 2020 as retail sales fell.

Unfortunately, the final decisions are made by politicians. And politicians cannot stop themselves from including tax cuts in any fiscal stimulus plan. Economic stagnation went hand in hand with hoarded savings. The Japanese economy was fragile even before the Great Recession. The eight year after that saw little real economic growth.

The use of corporate tax cuts to stimulate demand is unproductive. Tax cuts do not stimulate domestic consumption expenditure in times of economic uncertainty. Such tax cuts are often added to household savings. Savings are often not spent but hoarded. Once again, the velocity of circulation of money is reduced.

The Japanese, European and the US economies are all “victims” of financial market globalization. Surplus units are rushing to invest in share markets and some real estate markets. This investment rarely helps domestic consumption expenditure. Rather it merely increases hoarding of assets. Where economies were suffering record unemployment in 2020, hoarding was seriously impacting on economic growth. This time around it is not possible merely to manipulate a devaluation of exchange rates. The pandemic has taken away this ‘get out of jail free card’ used to expand exports. So these economies are going to have to rely on old fashioned Keynesian stimulus measures. This must include income tax increases for surplus economic units. Income tax increases can help to reduce hoarding.

END NOTES:

1 Anthony Hughes “Fed to consider new stimulus”The Australian Financial ReviewMonday August 23, 2010 (page 48){As Hughes points out, disinflation is the slowing down of price growth. Deflation is when you see outright price falls.}

2 Tomoko Hosaka “Tokyo looks to spending boost”The Australian Financial ReviewMonday August 23, 2010 (page 49){More information is given in this article about the Japanese government’s policy options.}

3 The Economist “The great mall of China”January 2-8, 2021 (pages 47-50)

4 James Politi “RECOVERY IN U.S. RUNS OUT OF GAS”FINANCIAL TIMESJuly 23, 2020www.ft.com