The coronavirus crisis – a particular type of shock – Part 1

Economists like to think in terms of demand and supply. Often by assuming the independence of the two, they make huge errors, none the least being when in the 1930s they advocated wage cuts to cure the unemployment arising from the Great Depression, on the assumption that the cuts would reduce costs for firms and encourage them to hire more. But they failed to understand that economy-wide wage cuts would undermine aggregate spending, upon which production decisions, and, ultimately, employment decisions depended. The coronavirus outbreak is one of those events that emphasises the interdependence between the demand and supply sides of the economy. It is a supply shock – in that it has reduced the growth in output supply as firms stop producing because their workforces are quarantined. And that shock then feeds into a demand impact as the laid off workers lose incomes and reduce their spending accordingly. However, there is also a separate demand shock associated with the crisis, quite apart from the supply impetus. The fear and uncertainty associated with a possible pandemic has meant that consumers are altering their spending patterns rather quickly with airline travel and other such activities falling sharply. So this is a very special type of calamity that doesn’t fit the usual types of shocks that economies endure. And as a consequence, it makes the task of designing an economic policy response rather more difficult. But make no mistake. Fiscal deficits will have to rise substantially for an extended period and governments will have to do things they have never really contemplated before if a deep recession is to be avoided. This is Part 1 of a two-part series of my current assessment of the coronavirus crisis, or whatever you want to call it.

Thinking clearly

Supply shocks come in two forms:

1. A price shock – example, the OPEC price hikes in the 1970s that immediately injected inflationary impulses into oil-dependent importing nations.

The problem then becomes a distributional one – which sector(s) is going to take the real income loss that the rise in the imported raw material necessitates.

The real income loss is because the nation has to devote more of its income to paying foreigner than beforeto keep using the raw material.

Obviously, over time, substitution away from the raw material evolve. For example, In Australia, household heating was dominated by oil heaters in the early 1970s. Within a short time, that became uneconomic and new forms of heating were substituted.

Same story goes from the replacement of the big six and eight cylinder cars that were comon in the early 1970s with the smaller four-cylinder vehicles.

But, that process takes time and in the interim the nation has to determine how the real income loss will be shared.

If workers are forced to take the loss via real wage cuts as the price level rises that is not only unfair but in many cases will provoke wage demands and other forms of industrial action (sabotage, absenteeism, resignations, etc).

So some income loss sharing arrangement sponsored by government is required to avoid an inflationary spiral from emerging.

2. An output shock – example, the collapse of farm out in Zimbabwe after the takeover of the farms by the freedom fighters.

In this case, a spending stimulus is tricky because it is likely to trigger inflation especially in the case of Zimbabwe, where the output loss was food and there was the danger of mass starvation.

The trick is to try to stimulate areas of the economy that have capacity to respond in real output terms.

So, in the case of the coronavirus, the sudden drying up of JIT components from Chinese factories for local firms, will damage their sales position.

The government can always offer these firms some short-term debt relief and other cash inducements to tied them over.

But the major damage will not come because we cannot purchase some Apple products for a while (noting that Apple has withdrawn many product lines temporarily due to lack of ability to supply).

Rather, it will be the impacts coming from the rising unemployment and income loss as workers are laid off due to inactivity.

This is when the ‘supply’ problem morphs into a demand problem.

And the government has all the capacity it needs to prevent those income losses from multiplying.

I have long criticised the way we construct crises and their solutions in Australia.

For example, in this blog post – Framing matters – the unemployed and the farmers (August 7, 2018) – I argued that there is an hypocrisy in the way we deal with unemployment and the unemployed vis-a-vis other groups in society that we endow with higher privilege, especially in this neoliberal era.

We have seen this hypocrisy countless times in Australia when governments deal with drought assistance to farmers.

When Australia is experiencing a serious drought, Federal and State governments trip over each other to offer very large support packages to farmers and their communities to tide them over while their income dries up (excuse the pun).

There appears to be no limit to the support these governments are announcing.

But the same largesse is never applied to the unemployed, who, like the farmers are caught up in income losses as a result of a systemic failure – lack of spending in the first case, lack of rain in the second.

One could say that, in fact, the farmers are, in part, the cause of the drought due to their aberrant farming measures.

But that aside, the vastly different way the government treats farmers relative to unemployed highlights, once again, that the way we construct a problem significantly affects the way we seek to solve it.

Mainstream economists teach their students that the unemployed have chosen their ‘leisure’ state over work and are thus just welfare soaks.

The same hypocrisy is being demonstrated in the recent bushfire crisis.

Why should people who freely choose to live in high bushfire prone areas and enjoy the private benefits of the tranquility and peace tha a bush-setting brings then be able to receive public bailouts when a fire comes – as statistically they do with some frequency?

And juxtapose that question with the reality that the unemployed are forced to live on income support payments that are well below the poverty line in Australia and face pernicious work test regimes in order to receive their pittance from the federal government.

The point is that the coronavirus is likely to cause a sharp rise in unemployment and an immediate response from government should be to ensure that incomes are tied over for the period of the crisis.

Whether we want to call this a wage subsidy (which employers typically abuse) or a once-off payment to workers who lose their jobs during the crisis is not really the point.

With consumption the largest component of national spending and wages the driving force in determining spending growth, it makes sense for the government to ensure that it picks up the income loss tab for the unemployed during the crisis. More on this below.

Which then introduces the other type of shock – the demand shock.

The income losses arising from the initial factory shutdowns induce a decline in spending.

However, the fear and the panic is also impacting on spending directly – via a reluctance to travel etc.

Some of my events in my next speaking tour of Europe in June have been cancelled already. Perhaps others will be.

Tourism operators are facing a massive loss of income as their markets decline. Airlines are mothballing planes and scrapping routes.

The government has the capacity to minimise these sorts of losses if it chooses.

What is the relative strength of each part of the crisis?

While there are supply-side dimensions to this crisis – the Chinese factories being closed and global supply chains being interrupted – I think that this is the lesser issue relative to the subsequent demand-side failures that are going on as people deal with fear and uncertainty.

The Zimbabwe farm crash was very severe and long-lasting.

The supply halt driven by the shutdowns and quarantining are temporary and I do not expect any sustained supply shortages enduring.

But the demand-side impacts are already looking fairly pronounced and will be long-lasting if governments do not intervene.

As I will argue later, we enter this crisis in an already fragile state:

1. The labour market is far from recovered from the GFC and has been in reverse over the last year or so.

2. GDP growth is poor.

3. Business investment growth is negative and has been so for several quarters.

4. Household debt is at record levels and wages growth is flat.

5. On a global scale, it is clear that governments did not deal with the GFC properly. The extended austerity has created significant structural damage to economies and there are a high proportion of banks and corporations that can best be described as being in a ‘zombified’ state.

The Bank of International Settlements report in its September 2018 Quarterly Review – The rise of zombie firms: causes and consequences – estimated that:

The prevalence of zombie firms … defined as firms that are unable to cover debt servicing costs from current profits over an extended period … has ratcheted up since the late 1980s … [due] … to reduced financial pressure, reflecting in part the effects of lower interest rates … [and] … are less productive and crowd out investment in and employment at more productive firms … [and constitute] … some 12% in 2016 … [of all firms]

There is also a significant proportion of so-called ‘impaired banks’ that have been able to keep trading because of extensive central bank support that are effectively insolvent.

The two states are linked.

The zombie banks have been able to ‘carry’ non-performing loans of zombie corporations, which has kept both from going bust.

By keeping these zombie organisations afloat, central banks have stalled productivity growth in the wider economy.

Further, I have already documented last year – for example, Is the British Labour Party aboard the fiscal dominance train – Part 2? – the large global pension funds and insurance funds are also facing a major maturity mismatch between the returns from their assets and their contractual liabilities.

And to resolve the mismatch, they have been seeking to generate higher returns on their assets, which means they are taking on higher risk and exposing themselves to higher probabilities of insolvency in the face of any new crisis.

As we go into this crisis, many pension funds and insurance funds are teetering on the edge of insolvency and increasingly riskier investment positions as they chase yield in this negative interest rate environment.

The conclusion is that a reliance on monetary policy has destabilised the whole financial system and a return to fiscal dominance is essential.

6. The Eurozone is dependent on Germany and it is dependent on its export strength, given its pathological unwillingness to stimulate domestic growth.

And, as a result of its demolition of prosperity among its EMU partners (through insistence on prolonged austerity), that strength now relies on China.

And as China is currently in strife, Germany is also heading into recession, which will take the rest of the Eurozone with it, given the austerity mindset of its leadership and its reliance on monetary policy.

In this context, the demand-side crisis has the potential to be very deep and damaging and governments should abandon the idea that only small, temporary fiscal interventions will be required.

My assessment is that large fiscal shifts are required – to prop up incomes and spending – and that they should endure while governments also sort out the structural mess that the extended reliance on monetary policy has created.

In that regard, this should be the time that governments seriously clean out the financial sector. They should allow the zombie firms and banks to exit while protecting their workers and their entitlements.

They need to provide an extended spending support for income growth so that households can reduce their debt positions.

As the July 2019 tax cuts showed in Australia, the beneficiaries did not go on a spending spree as a result of the increased disposable income. Instead, they paid down debt, and the actual growth stimulus from the measure was weak.

That didn’t mean that fiscal policy is ineffective. It just meant that if the intention was to stimulate growth (from its current parlous rate) then the stimulus was far too small, given the massive debt burdens that households are carrying.

That should be a warning to governments currently planning stimulus interventions.

They have to be large and maintained for an extended period.

That is because they have to not only deal with the spending collapse in certain sectors (tourism etc) but they also have to underpin debt restructuring and reductions and the chaos that will follow the ultimate destruction of the zombie corporations and banks.

If governments prop up these zombies then they are misusing their fiscal capacity.

Governments should focus on securing the position of workers not firms.

Monetary policy is not the answer

Already, central banks around the world are cutting rates as a standard neoliberal policy response in the context of treasury departments continuing to go missing.

Cutting interest rates will not help alleviate the crisis.

Firms will not borrow if their markets are collapsing.

Consumers will not be able to take advantage of the lower rates if they are losing their jobs.

A lower exchange rate and increased international competitiveness will not overcome the falling spending if the crisis is widespread.

Ignorance is not the answer

A former Australian Labor government advisor, now in private consulting practice, wrote the other day that the Government cannot “stimulate our way out of the virus crisis” because it is not a standard demand shock where (Source):

Government stimulus works by showering consumers with money and coaxing them back to the shops

He claimed that:

It’s a supply shock caused by businesses having less to sell because their factories are closed, their supply chains are disrupted and their workers are quarantined at home. Trying to stimulate your way out of a supply shock is like throwing water on a grease fire. In a worst-case scenario, stimulus can exacerbate the shock as panic buying creates shortages and rising inflation.

There is an element of truth in that.

But he ignores that both types of shocks are present here and as I explained above, the demand-side shock is the more dangerous for long-term prosperity.

Factories will reopen soon and the supply chain will start flowing fairly quickly. And, there are still inventories available in many product lines.

The damage will come from the spending collapse not the temporary supply restraints.

Also the OPEC shenanigans (disagreements leading to increased supply) will help offset some of the supply chain interruptions. Production costs will be lower as a result of cheaper oil.

The airlines, for example, will benefit in this way.

Further, the former advisor completely misunderstands the capacity of the Australian government as the currency-issuer:

Australian policymakers face another problem – there isn’t much stimulus ammunition available … The sobering question now is: how many of those stimulus measures are available today? The answer is very few. China is the cause of the problem, not the solution. The Aussie dollar is already below 65¢ and doesn’t have the same room to fall. There is no budget surplus to spend and the Reserve Bank of Australia told Parliament this week it only had capacity for one more interest rate cut. In 2008, we had a locker full of ammunition to fire at the crisis. Today that locker is bare.

This is an oft-heard claim – the empty “locker” story.

It is why governments withdrew their stimulus support during the GFC too early in many nations and as a result the world is in a worse position now than before the GFC.

First, governments do not “spend” budget surpluses. Surpluses are the net result of two flows that are here today gone tomorrow.

The Australian government, as the currency-issuer, can always increase its net spending irrespective of what it did yesterday. There is no financial constraint on the government introducing a massive stimulus if that is seen to be appropriate.

It can sustain that stimulus for as long as is necessary.

All the arguments about rising interest rates, inflation threats, crowding out are wrong, have always been wrong, and if given the centre stage will mean the crisis will be amplified.

Commentators who run the “locker is bare” argument should be ignored.

Second, on September 24, 2001, the Australian dollar was trading at 0.4912 against the US dollar and by July 18, 2011 it was trading at 1.0851. To say that somewhere around 65 cents is the limit of its movement is ludicrous.

Third, thinking that interest rate cuts are to be part of the solution is, like the rest of this sort of argument, just a sop to the standard mainstream neoliberal macroeconomics that has got us to this point – a crisis with deficient medical systems, precarious workers and massive private debt levels.


Tomorrow, I will complete the series and offer some more ideas about how an Modern Monetary Theory (MMT) economist constructs the coronavirus crisis and its solutions.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.

This Post Has 23 Comments

  1. I can certainly vouch for the plummeting demand. In the airline industry we are now looking at unpaid leave, reduced Ts &Cs because our bookings have bombed.
    Perhaps this is an opportunity to invest and create jobs in a low carbon economy. I certainly have little trust that the U.K. govt will do anything approaching sensible.

  2. If reports I have read are anywhere near accurate, the discussion today between unions and employer groups – chaired by Industrial Relations minister Christian porter – in part regarding what to do about millions of casual workers who may be directed to self-isolate if diagnosed with coronavirus, despite the fact that many will find the financial strain difficult to impossible, appears to have been less than fruitful.

    We have a two-headed crisis here, the first in the form of a nationwide (and worldwide) public health crisis, despite the relatively low mortality rate among healthy individuals, and the second in the form of the economic train wreck that is likely to unfold. Yet the government appears determined to not use it’s fiscal capacity here to help alleviate the issue swiftly but rather, to encourage unions and employers to slug it out between each other over who will bear the cost.

    While I find plenty to criticise Labor over, if memory serves their resposnse to the 2008 collapse was fast – this mob had better get things moving soon or they will be the epitome of Nero fiddling while Rome burned.

  3. We need to acknowledge that this is a Baby Boomer Flu. Practically speaking anyone (healthy) below 40 can be a carrier but won’t get more sick than with ordinary cold or flu. The disease is very serious for these above 65 and deadly for these over 80 or in a poor shape. (I am over 50 so it can get me too, I am not writing this because I want the virus to exterminate baby boomers). If everyone was below 40 the best thing would be just to ignore the problem.

    What is the chance that young people will cooperate and slow down the spread of the virus so that during the peak the hospitals will not get overwhelmed? This is an inter-generational issue. If someone who is 20 works for Uber Eats, what’s the chance that person will self-isolate if he develops cough and mild fever? Come on, the majority of people keep working with these symptoms, if it is ordinary cold. Yet the chance of spreading the virus by someone visiting multiple homes is quite high. What is the incentive for these people to stop working?

    This is the way we need to argue for the change in the policy. We are ruled by so-called liberals and I would appeal to their selfishness rather than talk about the society they have demonstrated they don’t care about during the bushfire season or rely on moral values they reject anyway, despite having mouths full of Jesus.

    If baby boomers die out, who will vote for people like Morrison?

  4. If this ‘crisis’ forces people to do less, travel less, consume less, learn how to sit still, think about others, not see life as incessant ‘doing’, as Pascal put it (perhaps exaggeratedly):

    “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

    Then maybe there could be a psychological.spiritual spin off of all of this. Clearly there will need to be a fiscal initiative to shore up the demand/supply crisis and create a transition into other types of jobs. Of course, once the ‘all clear is sounded’ it will be business as usual, I suppose.

    I can’t help, though, finding it cheering that air travel is collapsing and pollution measures in China have fallen and people are cr*pping themselves about their precious pension schemes inaugurated by money manager capitalism in the 90’s.

    That’s not to say I don’t feel concerned about the impact it’s just that we might learn that Government can do things again and that we might wake up to the reality of the grift, graft, scam and ripoff that has been perpetrated over the last forty years.

    Can Covid-19 be the real death of neo-liberalism? Probably not.

  5. Great post as usual.

    I put it like this amongst the peers I’m trying to convert from neoliberal paganism: the state of public health and infrastructure in general is alarmingly bad due to the imposition of austerity and “fiscal responsibility” on governments around the world. A crisis that puts pressure on those systems is inadequately addressed both because of this and the reluctance to implement a furhter, proper response (extended and robust fiscal stimulus). The added effects of the crisis and the non-response worsen the economic position in neoliberal terms: the crisis persists, output diminishes and the non-response is thought of as a cost with little to no benefit to it. At this point the opportunity arises to either break with the obviously flawed conventional wisdom or double down on the stupidity and the indifference to human suffering.

    Unfortunately, my money is still on the latter. But I firmly believe the tides are slowly turning.

    I have followed your posts regarding China and Asia/Russia in general with great interest. Can you share some of your sources with me? All I get in Germany is either mainstream or RT and they are each heavily biased in their assesment of geopolitics.


  6. @ Simon C.

    “If this ‘crisis’ forces people to do less, travel less, consume less, learn how to sit still, think about others, not see life as incessant ‘doing’, as Pascal put it (perhaps exaggeratedly):

    “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.””

    You raise an important point, renouncing consumerism and a supremacy of humanism and environmentalism are at least as important as the proper understanding of the fiscal policy tools available to a sovereign country. This will prove difficult as long as we remain ruled by those “who know the price of eveything and the value of nothing”. On the other hand, as long as a large amount of the population in industrialized countries experiences fears of both material and social declassation, it will be very difficult to sell empathy, solidarity and love. Especially if it’s being preached by a sector of the well -to-do who renounce little to nothing themselves and might even call them “racists”, “deplorable” or “ignorant” in the process.

    “That’s not to say I don’t feel concerned about the impact it’s just that we might learn that Government can do things again and that we might wake up to the reality of the grift, graft, scam and ripoff that has been perpetrated over the last forty years.”

    As I said in my post above, my money is on doubling down on idiocy.


  7. @Adam K: With all due respect, I don’t think it is particularly helpful to label this baby boomer flu. (let’s not do identity politics on this of all blogs).

    People in their mid-90s (like my mother) were not products of the post WW2 baby boom, but of the post WW1 slump. As you know, we have an ageing population so there are quite a few around now, not to mention people in their 70s,80s and the odd centenarian.

    It’s normal to suggest that the old and the very young (whose immune systems have not yet fully developed) are most prone to infections of any kind.

    The misleadingly-named Spanish Flu of 1918,19 (20?) is said to be different in that it is supposed to have hit fit youngish adults the hardest. No one really knows why (and I would add that we probably should be suspicious of this oft-repeated “fact” , since under the circumstances, record-keeping can’t have been all that reliable).

    But if it really was the case, then it’s possible covid19 might be similar.

  8. @ Mike Ellwood

    Not sure I agree with you – as an octogenarian I was enjoying the sensation of being classified as a baby-boomer, and now you’ve gone and spoilt it!

    (Seriously, I do agree with you of course. My reaction was much like your own).

  9. “I don’t think it is particularly helpful to label this baby boomer flu.”

    Best description I’ve seen is “Kung flu”.

    Always good to have a chuckle in these dark times.

  10. Mike, it is of interest that you mention the so-called Spanish flu as being misleadingly named. That is quite right as it came from China. It was called the Spanish flu because, of all the countries in Europe that were affected, only the Spanish made a great noise about it. Hence, the moniker.

    The death rate for that flu was highest for those between 18 and 40, rather different from the coronavirus. It appears as though the 1918-19 flu virus turned the immune system against itself so that those with the most robust immune systems were those most at risk. This coronavirus acts somewhat differently. It also seems that the physical structures of the two viruses are distinct.

    The genetic sequence of the 1918-19 flu virus is known because an Inuit woman who had been buried for over 75 years in the Alaskan permafrost had the virus intact in her lungs; her body was exhumed in the late ’90s and the virus’s genome sequenced. Serendipity at work.

  11. “In 2012, a Dutch virologist, Ron Fouchier, published details of an experiment on the recent H5N1 strain of bird flu. This strain was extremely deadly, killing an estimated 60% of humans it infected – far beyond even the Spanish flu. Yet its inability to pass from human to human had so far prevented a pandemic. Fouchier wanted to find out whether (and how) H5N1 could naturally develop this ability. He passed the disease through a series of 10 ferrets, which are commonly used as a model for how influenza affects humans. By the time it passed to the final ferret, his strain of H5N1 had become directly transmissible between mammals.

    The work caused fierce controversy. Much of this was focused on the information contained in his work. The US National Science Advisory Board for Biosecurity ruled that his paper had to be stripped of some of its technical details before publication, to limit the ability of bad actors to cause a pandemic. And the Dutch government claimed that the research broke EU law on exporting information useful for bioweapons. But it is not the possibility of misuse that concerns me here. Fouchier’s research provides a clear example of well-intentioned scientists enhancing the destructive capabilities of pathogens known to threaten global catastrophe.

    Of course, such experiments are done in secure labs, with stringent safety standards. It is highly unlikely that in any particular case the enhanced pathogens would escape into the wild. But just how unlikely? Unfortunately, we don’t have good data, due to a lack of transparency about incident and escape rates. This prevents society from making well-informed decisions balancing the risks and benefits of this research, and it limits the ability of labs to learn from each other’s incidents.

    Security for highly dangerous pathogens has been deeply flawed, and remains insufficient. In 2001, Britain was struck by a devastating outbreak of foot-and-mouth disease in livestock. Six million animals were killed in an attempt to halt its spread, and the economic damages totalled £8bn. Then, in 2007, there was another outbreak, which was traced to a lab working on the disease. Foot-and-mouth was considered a highest-category pathogen, and required the highest level of biosecurity. Yet the virus escaped from a badly maintained pipe, leaking into the groundwater at the facility. After an investigation, the lab’s licence was renewed – only for another leak to occur two weeks later.

    In my view, this track record of escapes shows that even the highest biosafety level (BSL-4) is insufficient for working on pathogens that pose a risk of global pandemics on the scale of the Spanish flu or worse. Thirteen years since the last publicly acknowledged outbreak from a BSL-4 facility is not good enough. It doesn’t matter whether this is from insufficient standards, inspections, operations or penalties. What matters is the poor track record in the field, made worse by a lack of transparency and accountability. With current BSL-4 labs, an escape of a pandemic pathogen is only a matter of time.”

  12. I would like to learn more about “the structural mess that the extended reliance on monetary policy has created”. Probably that has been explained before here, any pointers?

  13. Here’s an idea for a stimulus – government swiftly reimburses hundreds of thousands of people the money they unlawfully-garnered through Robodebt from people who were working in casual and temporary positions at the time. Many of these people are probably still in such a position and will have a high propensity to spend, injecting demand into an economy that was already sagging well before coronavirus and bushfires. The conomy will receive a boost and justice will have been served (to whatever extent it can be).

  14. The Neoliberal virus is on the march and showing no signs of being cured.

    The virus is working very hard to make sure within a very short timescale. Easily within the next decade the only choice available at the ballot box will be parasitic characters from the liberal left and liberal right. Providing no choice and democracy quarantined.

    Before long the choices available in the West will be clones of…..

    Blair v Major v Sandown

    Blair v Hague v Kennedy

    Throw in Bush and Kerry and Obama and Romney.

    You see how the neoliberal virus kills the host and populism stone dead. With Trump and Boris gone it will be business as usual that is the priority. One way or another they will get rid of them, everything else is a sideshow a soap opera for social media. As for a real left wing candidate ever being a choice not in my lifetime.

    By 2030 or before let’s see who the choices are. Presented on a platter as progressive democracies and as free countries. Quarantined from everyone but the 1%.

  15. The aftermath of the GFC the FED intervened to ‘ignore’ the devalued assets on the side of the financial industry who were by all means insolvent. You see a 30,000USD house in a market of ~30k houses. That house was probably ‘set’ at its prior value on the balance sheet of the banks to be ~250,000USD.

    Point being there is all sorts of strings that can be pulled to set price on any subset of aggregated balance sheet. Italy just decreed that mortgage payments are waived for households. If they can do this now why not at any other point in their depression (yes call a spade a spade, Italy is balance sheet depression for 12 years now, they export their young people with their PHD’s to work cafes in Germany).
    Many countries institutionally are so ideologically retarded i don’t know from where they will get the know-how to put someone at the controls who can use them properly. It will be pin the tail on the stimulus donkey in the eurozone, most attempts will fail:

    1.monopoly on currency (or for non-sovereign EU a fancy secondary market bond sales mechanism)
    2.the tools to use this to SET prices, adjust assets and liabilities with supply shocks, workaround (hacks) or long term mitigation.
    4.reaffirm automatic stabilisers (in Australia’s case does that mean doubling or tripling unemployment benefits by now?)
    5.employ all the unemployed.

  16. I’m still a bit daft about these things, where is the 25 B€ in the EU coming from? According to Reuters (, there is no “fresh” money, so are they just defunding the meager budget?
    You’ve got to admire the magnanimous solidarity, though:
    «France, Germany and the Czech Republic last week refused to lift controls on the export of protective gear to avoid shortages at home, despite a formal request for kit from Italy, which is reeling from an explosion of infections and deaths.»
    (note: that’s fine, China covered it… sigh)
    «Earlier on Tuesday Austria had unilaterally broken with the EU principle of free movement of people by denying entry to people arriving from Italy to slow the spread of the disease. »

    What a Union!

  17. Fodder for your next blog.


    Christ these clowns annoy me …

  18. One aspect this shock that I did not identify in Bill’s excellent essay is the mismatch between public health requirements and much existing economic activity.

    Health requirements are for greater spatial isolation to reduce transmission rates to a level that can be dealt with by our health infrastructure.

    On the other hand, the economy seems to involve inordinate levels of unnecessary human interaction — work “meetings “, desk warming, sales and canvasing activity, etc.

    Seems to be considerable potential for unwise stimulus that exacerbates the health crisis.

  19. Off topic, but interesting I hope.

    We all know about the Paradox of Thrift. That if everyone spends less to save more (often paying down their debt) that this will reduce the GDP and may cause a recession.

    I want to suggest that there is also the Paradox of Suppressed Wages. That each comp. gains if it keeps the wages of its workers from growing, but if every comp. does this it keeps the GDP from growing. One response to this is for the workers to hope their income will grow soon and so they borrow now. This borrowing lets the GDP grow despite the flat wages. However, someday soon they must stop borrowing because their wages haven’t grown and they can’t make a higher payment (interest & principal) now. When they borrow less this makes the GDP grow more slowly, and this can cause a recession.
    . . IStM that business owners & omp. should not lobby to keep the min. wage from being raised. That letting all other comp. be forced to pay *your* customers more is better for your comp., than your comp. and *all* comp. paying their workers/customers less and make them borrow to make ends meet.
    . . Keeping the min. wage from growing is business owners shooting themselves in the foot. They just don’t know or believe it.

    What do you think?

  20. Steve American, what I think is you should write these ideas down and then propose them when they are more relevant to the original topic. But in the meantime you can look up Michal Kalecki’s “The Political Aspects of Full Employment” essay which you will find pretty much agrees with what you wrote about employers willing to shoot themselves in the foot. Bill had a blog about it here and the original essay by Kalecki is very worth reading.

  21. Jerry,
    I’ll stop if and only if Bill asks me to.

    You missed one of the key points of my post.
    Which is the new catchy name for the process.
    The Paradox of Thrift and the Paradox of Wage Suppression go hand in hand.

    I’m still reading your links but I have not seem my catchy name for it yet.

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