If you want a sense of how bad the crisis is, just look at Boris Johnson’s face. More and more he resembles a bruised and battered rabbit stuck in headlights.
But we were really the rabbits in a huge and deadly experiment under Johnson’s and his advisor Dominic Cummings’s “herd immunity” strategy.
An article on the website Buzzfeed on how they were forced into changing tack says, “Johnson’s own personal views on the role of the state have been a major factor.”
In other words, neoliberalism helped to motivate the original decision to avoid a lockdown.
Political fear of the potential death toll helped to force Johnson into a partial U-turn. But it was also the scale of the economic collapse.
Investment bank Morgan Stanley predicted the US’s gross domestic product—which measures the market value of all goods and services—will fall by 30 percent between April and June. Other financial institutions also predict drastic falls.
“Whatever actually happens it is crucial that key actors in global economy are expecting an unprecedented implosion,” tweeted economic historian Adam Tooze. “That changes the game!”
These figures are for the United States, but the picture is the same for Britain and the rest of Europe. This is an economic collapse on the scale of the Great Depression.
As the Marxist blogger Michael Roberts was quick to point out, this huge contraction reflects how fragile the world economy already was.
It had been kept afloat for the past decade by cheap central bank money. This has led to a huge rise in corporate borrowing. Fear of a debt crisis has now caused a credit crunch comparable to the 2007-8 crash.
Banks and firms have stopped lending to each other, and are hanging onto their cash. Dollars—the fuel of the global banking system—have become scarce, just as they did during the crash.
The price of all kinds of assets have been falling as investors desperately sell to get their hands on dollars. This is a classic feature of financial panics, as the revolutionary Karl Marx described in his master work Capital.
But the contraction is exacerbated by the reality that combating the pandemic requires a lockdown that will close much of the economy.
The problem is that in capitalist economies, the production of goods and services generates economic actors’ incomes in the shape of wages, profits and rent.
Dealing with this problem requires more than the kind of measures that central banks are now rushing out. These are rock bottom interest rates, dollar swap lines from the US Federal Reserve Board for other central banks and buying assets such as bonds.
All this is out of the 2008-9 playbook. But what we need now is state management of the economy.
This is required to impose lockdown and to decide which sectors should shut or stay open or be redeployed.
It’s also needed to transfer resources to health services, to replace the incomes of all those whose jobs have been suspended, and to protect the vulnerable.
Chancellor Rishi Sunak has been pushed gradually in this direction. In ten days he introduced three packages—the first £12 billion, the second another £20 billion.
His announcement last Friday that he will pay 80 percent of “furloughed” workers’ wages will cost £3.5 billion per million workers over three months.
Similar measures are being introduced elsewhere. They will be paid for either by higher government borrowing or through what economists call “direct monetary financing”—printing money.
This is anathema to neoliberal orthodoxy—hence Johnson’s reluctance to go in this direction, and characteristic foot-dragging by the European Union.
And there is indeed a contradiction, summed up by the right wing economist Ambrose Evans-Pritchard in the Telegraph newspaper, “Boris must embrace socialism immediately to save the liberal free market.”
But once we have started to put need before profit, why should we stop when the pandemic is over?