They have been awfully quiet recently, the purveyors of those “modern” and “progressive” economic theories that were so in vogue before the pandemic. Not long ago, after all, we were being forced to listen to proponents of ideas like “modern monetary theory” (MMT) and “universal basic income” (UBI) tell us why there was little practical constraint on printing or spending money and that the problem was that governments spend too little, not too much.
Then along came the pandemic and, quite suddenly, the moment arrived for us to experiment with these miraculous, economic cure-alls. Governments and central banks unleashed a wall of cash and for some of it, like furlough money, they had good reason. The chief advocate of MMT, a US professor called Stephanie Kelton, declared victory and told economists warning about the inflationary consequences to “take a hike”. Various forms of stimulus and furlough in the US and Europe were discussed as just the start of a massive expansion in the welfare state that would pay everyone to do nothing. Now, the reckoning has arrived.
Going by the latest data, which showed the economy shrinking in March, the UK is very likely already in recession. Inflation is forecast to hit double digits this year. In the City, bankers report that we have switched almost overnight from a sellers’ to a buyers’ market. The Government is dithering, caught between the horror of millions of households unable to make ends meet and the parlous state of public finances.
Meanwhile, post-furlough, the workforce has shrunk demands, workers are refusing to come back into the office and markets are demanding ever more in interest to lend to the Government. The public sector’s culture of producer-capture, whereby services are run for the benefit of their staff rather than users, has gone into overdrive. The pandemic maxim to “protect the NHS”, at the cost of our lives, has infected everything, so the Government is now castigated for the “mental health” effect of its immigration policy on Home Office staff and GPs’ surgeries display posters emphasising that Doctors are overworked and under-appreciated. Guilt-tripping patients for needing medical treatment is par for the course.
Advocates of radical, high-spending government policies have long told sceptics that they were wrong to fear malign effects from an over-expansion of the state. Supposedly, the natural good in humans would overcome the dark pull of financial incentives. If the Government, following the principle of UBI, paid everyone a minimum amount to do nothing, they would not just sit at home and milk the state, but would be more productive and creative. To be sure, if you measured the economic output in Facebook posts and amateur sourdough production, furlough was undoubtedly a pro-growth strategy.
Likewise with the enormous expansion in quantitative easing (QE) by central banks during the course of the pandemic. MMT, a series of tautologies masquerading as a new economic theory, appeared to suggest that any government with its own currency could print money to its heart’s content and never worry about ballooning deficits. No wonder the idea was embraced by the Labor Party under Jeremy Corbyn, whose manifesto included a proposal for a “People’s QE” to fund all sorts of spending goodies.
Not even in Mr Corbyn’s wildest dreams could he have imagined seeing a Conservative government effectively pursue the same policy – except that instead of spending the cash on infrastructure, as labor was supposedly planning and which would in theory generate returns, it was handed out to households . Yet as The People’s QE has duly generated The People’s Inflation, promoters of MMT like Professor Kelton have begun to obfuscate and backtrack. She never said that inflation wasn’t a risk, she claims. All she meant was that governments could print and spend lots and lots more money without any ill effects. This is the rhetorical equivalent of a dog chasing its own tail.
Despite the near-fraudulent silliness of these radical schemes, however, the scales have yet to fall from people’s eyes. As recently as February, The New York Times ran a glowing profile celebrating Professor Kelton’s “victory lap”, with just one or two sheepish “caveats” mentioned towards the end. The Welsh Government is pressing ahead with a “trial” of universal basic income, by handing 500 young people an unconditional annual income of £19,200 a year for two years. More broadly, even with a recession looming and warnings of job losses across the economy, public sector and corporate workplaces are still obsessing over lifestyle choices rather than survival.
Few would argue that the Government should simply have done nothing in response to the pandemic. As the virus spread and the economy closed down, households needed emergency support to avoid catastrophic economic damage and it is likely they would have needed help even without the lockdowns imposed from above. But for a large segment of the British Left, pandemic relief schemes were not a one-off lifeline and a massive gamble. They were the fulfillment of long-held dreams about the way they want society to be governed.
It is only fair, then, to judge them on their outcomes. The resounding conclusion is that, far from being harmless and manageable, the vast expansion in state spending and monetary policy trialled by Covid policies have had profoundly damaging effects on the cost of living, the security of public finances and the resilience and working culture of our economic. Nor did it take years to generate this result. The effect has been almost immediate.
If this cabal of self-righteous spendthrifts had any sense of dignity left, they would take a well-earned break from dispensing advice on how to run the economy and stop trying to build a façade of intellectual credibility to disguise their pie-in-the -sky notes.
Instead, we have to listen to the Labor Party haranguing the Government simultaneously for failing to bring down the cost of living, not spending enough, and failing to address “climate justice” and “structural inequalities” all at the same time.
The Left, however, has failed to learn the lesson of its own delusions: if a pet theory looks too good to be true, then it’s almost certainly false. There is nothing progressive about crashing the economy.