A debt jubilee, universal basic income and the reversal of globalisation are three things Steve Keen wants to see in response to the COVID-19 pandemic and resulting economic downturn.
Keen, a professor of economics, describes himself as a staunch critic of the mainstream. He hit the headlines back in 2010 after losing a bet with Macquarie Group interest rate strategist Rory Robertson that house prices would sink by 40%. As a result he had to walk more than 200km from Canberra to the top of Australia's highest mountain, Mount Kosciuszko, and used the walk to raise money for a charity that helps homeless people.
Keen is currently hunkering down in southern Thailand during the COVID-19 pandemic. With the economic fallout resulting from the pandemic already becoming enormous, has the time come for unconventional economic ideas and out of the box thinking?
Speaking to interest.co.nz, Keen outlined some ideas he believes governments and policy makers should be adopting.
Firstly, Keen says, they should be implementing a modern debt jubilee now.
"It's quite feasible to do it [but] I never thought it would happen. People asked me what chance I thought this had of happening. I said it's less than a snowflake's chance in hell. We are in hell now and the only way out of hell, as well as getting a vaccine for the virus, is to reduce this burden of private debt otherwise we'll have a financial collapse after the coronavirus," says Keen.
The alternative, he argues, is mass loan defaults.
"You simply have to accept that debt can't be repaid when too much debt has been issued. So we have to reduce private debt and we have to do it now. [We] should do a debt jubilee now, not once we get through this crisis. Otherwise there'll be many people who can't pay their rent, as well as people who can't pay their mortgages," says Keen.
"If we do it now we'll enable the payments system to continue functioning. If we don't do it now then it's quite possible the payments system will collapse. Small businesses won't get any cash income, households won't get wages. Everybody will end up having no money in their bank accounts because that money will be used to pay off debt."
What Keen's advocating for is governments' capacity to create fiat money being utilised to distribute an equal amount of money per person across entire countries.
"And people who were in debt would get their debts reduced, either by an offset account or by actually paying their debts down. People who are not in debt get a cash injection. And that cash injection can also be used to buy newly issued corporate shares which are used to pay down private debt. So as well as reducing household debt, you reduce corporate debt and you also democratise the ownership of corporations," says Keen.
There's more about a debt jubilee in Keen's blog here.
With unemployment surging Keen's also keen on universal basic income, or a guaranteed minimum income for all citizens.
"To have a functioning economy you have to have people spending money and most people get their money to spend from their wages. And that therefore means they're dependent on having a wage income. That's fine most of the time. But this is not most of the time. The only way we're going to defeat this virus is by an effective lockdown process. It could take, if it was done sensibly, as little as five weeks of lockdown to terminate this virus," says Keen.
"But possibly 70% of the population can't afford not to work for five weeks. Now, in that situation the only way to remedy it is to say let's use the government's money creation capability so that all the payments that are necessary, including rents and mortgages, can be made over that five week period and then we can get through this."
"What effectively happens is the economy's in a coma and we're expecting the cells within that body to continue functioning while the body itself is in a coma. It doesn't work that way," adds Keen.
A critic of globalisation, Keen's hopeful the post-pandemic world will be more regionally focused.
"Globalisation, thank god, will go into reverse because it was always a bad idea in the first place," says Keen.
Whilst pro-globalisation economists argue it's about efficiency and countries exploiting their comparative advantages, Keen disagrees. He argues that whilst workers can be retrained to switch industries, capital is not mobile between industries. Furthermore globalisation exploits low wages in third world countries even if this has benefited some countries, notably China.
"We've de-industrialised the West and now of course what do we need? Industrial capacity to produce, for example, ventilators which even America can't do sufficiently itself. So we have to go to a localised production system," says Keen.
He advocates for regions of the world that are big enough to produce most of what they need themselves, meaning less need for imports and exports with potentially a growth instead in the exchange of ideas.
"There's far less pollution from international trade, and there's also far less mobility for a virus to spread," says Keen.
Asked whether he was worried such a scenario could ratchet up competition between the world's major powers, potentially leading to war in a 1930s type scenario, Keen argues austerity not protectionism led to World War 2, beginning with the harsh repayments forced on Germany after World War 1.
"Go back to having a regional system, do it deliberately to enable one region not to infect another, in terms of diseases like the coronavirus, then it's done for a positive reason rather than a negative one of autarky which is how it's normally portrayed by conventional economists," says Keen.
New Zealand, he suggests, can be largely self sufficient and do well in such a scenario. He talks more about this, and other issues, in the video.
*This is the first interview in a series looking at reactions to and potential policy responses to the coronavirus pandemic and evolving economic downturn.