This is a re-post of an article originally published on pundit.co.nz. It is here with permission.
A hinge in history occurs where the past and present are connected but they point in different directions. Big hinges are rare but crucial in the development of humankind. Not in Narrow Seas identifies six.
The six previous New Zealand hinges were as follows. One was the arrival of the first Polynesians 700 years ago. The second occurred after 1840 with the mass arrival of Europeans. Refrigeration in the 1880s was another great hinge, redirecting New Zealand on a sustainable economic trajectory and reshaping its social and political life.
Curiously, the Great Depression was not a hinge, or rather did not become one until the Second World War impacted too. That direction came to an end with the collapse of wool prices in 1966, the fifth hinge. Eventually the new direction was found with the neoliberal Rogernomics revolution in the 1980s, the sixth hinge.
You might have expected the Global Financial Crisis, which began in 2008, to be a hinge for the world but there was really no new direction. Perhaps the Covid Crisis will lead to the new direction which the GFC seemed to presage.
The GFC of 2008 proved pretty scary, but those in charge had studied the lessons of the Great Depression and, following Keynes, did ’whatever it takes’. While the central banks of the world bailed out the private financial sector, the private bankers showed little shame, despite for years having insisted that the government should not regulate them and that taxes on them should be kept low.
Instead the bankers insisted that any adjustment should fall on the poor and those on middle incomes rather than on the rich. This neoliberal approach, often called ‘Austerian’, used the opportunity afforded by the crisis to shrink the state and increase the size and power of the private sector. It was an approach reminiscent of Rogernomics, which also protected the rich, leaving the rest of the population to carry the burden of adjustment.
There are parallels with the aftermath the hinge (after the Great Depression) which came during the war. The GFC did not really lead to a change in the way we governed. Perhaps I am stretching the parallels, but the Covid Crisis is frequently referred to as a ‘war’. Might we get a parallel shift away from neoliberalism after it? One signal is that this time the neoliberal shame is more evident.
For instance, the Taxpayers' Union, a right-wing advocacy group concerned with promoting low government spending and low taxes, said they had accepted a $60,000-plus wage subsidy for their nine workers during the lockdown because donations had fallen off. They explained that ‘prior to Covid-19, we have stated on the record that we would never accept taxpayer funding’ but they reversed their position, claiming that ‘the welfare of our employees [is] a more pressing immediate concern than ideological purity’.
‘Welfare is more important than ideological purity’ sounds more like pragmatic social democracy than the voice of neoliberal lobbyists. However, it is not inevitable that neoliberals will admit they were wrong, and acknowledge that the state continues to play a critical role in the Covid Crisis.
That the public sector can do things better is nicely illustrated by the Covid-19 crisis. Sweden was once a poster country among right-wing bloggers advocating minimal government intervention because of its laid back approach to dealing with the virus. But when its case and death rates began climbing, the blog references mysteriously disappeared. Currently, Sweden has the fifth highest Covid death rate among all countries – five times those of the surrounding more interventionist Scandinavian countries and Germany. As so often occurs, what contradicts an ideologist’s theory gets ignored.
Unquestionably the world faces a major fiscal challenge (which only ideologists can ignore) for the upward pressures on government spending are increasing. In addition it is facing a increase in liquidity from the government debt arising from the huge fiscal injections to bridge the malfunctioning economy during the Covid Crisis. The rational solution would involve higher levels of tax.
How this may be resolved and what might the new direction might be is hard to tell. The post-wool-price transition tells us that there will be strong conservative forces trying to maintain the old direction.
Perhaps the new direction will be summarised by the social democrat slogan, ‘wellbeing over ideological purity’. Yet, there is so much we can but guess at, Not in Narrow Seas reduces the guesswork.
Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He was the Listener economic columnist from 1978 to 2014. This is a re-post of an article originally published on pundit.co.nz. It is here with permission.